The sentiment for MPHB shares should improve further in the coming months as its demerger exercise nears completion, possibly in Jun 2013. Although the share price has rebounded from its YTD low of RM3.20, we believe that it is still not too late to accumulate the stock, which offers investors both value and income returns under its resilient earnings streams. At the current Offer for Sale’s price of MPHBC at RM1.00/share, the non-gaming assets are being priced at a 41% discount to their RNAV as well as the fact that the subscription cost will be offset by the capital repayment to investors under the scheme. MPHB will raise its earnings payout to 80% from 50% currently after the demerger exercise, making it one of the most attractive yielding stocks. MPHB remains as our TOP PICK for the gaming sector with an unchanged TP of RM4.31/RNAV share.

Sentiment to improve further. The share price of Multi-Purpose Holdings Bhd (MPHB) was involved in a roller-coaster ride in the past three months as it hit its YTD low of RM3.20 on 13 Feb before rebounding to the YTD high of RM3.72 in mid-Mar. The share price sentiment was affected mainly by the delay in the listing of MPHB Capital Bhd (MPHBC), which was initially targeted to be listed in Jan-Feb this year, and also due to the GE jitters. However, we expect the sentiment to improve further as its restructuring exercise nears completion, possibly in Jun 2013. To recap, the new listing was delayed due to the SC having approved the listing with the main condition that a review on the valuation of its property assets was needed.

MPHBC offer price is not an issue. The listing’s approval with conditions by the SC has led to uncertainty in the valuations for both its gaming and nongaming assets, which brought home our earlier concern that if the property assets were to be valued at their current values, they would reduce the attractiveness of the MPHBC offer. However, the majority shareholders, namely Casi Management Sdn Bhd and Asia 4D Holdings Ltd have stated that they would underwrite any unsubscribed MPHBC new shares should the Offer for Sale be under-subscribed. This has somewhat eased the concerns on the issue. Note that if the property assets were to be priced at market, this would mean that the offer price could be revised to be higher than the current offer price of RM1.00/share.

Shareholders wealth remains with upside potential. In any case, the combined valuation sum for MPHB and MPHBC will remain the same regardless of whether MPHBC is being priced at a discount to the market or at its market price. The gaming only-asset will be at a deep discount should MPHBC be valued at its market price, and vice versa. In addition, the potential upside should be huge after the demerger on value accretion given that: 1) MPHB will be the only pure NFO player locally as the NFO business of Berjaya Sports Toto Bhd (UP; TP: RM3.88) will be listed on the SGX soon as a Business Trust; and 2) there could be the unlocking of value for MPHBC’s property assets, especially on its sizeable landbank in Pengerang, Johor.

At the current offer, MPHBC is at deep discount. To recap, all the shares of MPHBC are being offered to the shareholders of MPHB under a renounceable 1-for-2 Offer for Sale at RM1.00/share worth RM715m (MPHB is expected to recognise a RM250m disposal loss). The RM1.00 offer price is 41% below our estimated MPHBC value of RM1.24b or RM1.73/share, which is already fairly conservative as we based largely its valuation on just the NBV of its assets. MPHB had indicated earlier that the discount was mainly to reward its shareholders.

TOP PICK in the gaming sector. We see two re-rating catalysts for MPHB now i.e. 1) a rerating of its gaming assets and 2) the revaluation of the land bank at MPHBC. Even at the scenario where the valuation of its gaming asset remains status quo (the same as BToto), one will still get the MPHBC shares for free as the capital repayment is almost enough to pay for the shares. Hence, we are maintaining our OUTPERFORM call on MPHB as well as selecting it as our TOP PICK for the gaming sector with a TP of RM4.31/RNAV share.

Source: Kenanga