The recent adjustment to MPHB’s share price after the shares went ex-entitlement for its Offer-for-Sale of MPHBC share is presenting yet another buying opportunity with a 20% upside potential. This includes a one-off 13% yield for the 48 sen capital repayment to be paid in three months’ time. On the other hand, the holders of the Rights of the Offer-for-Sale should subscribe to get the MPHBC shares for RM1.00/share offer price for its property assets and also get the financial services business for free. We have cut FY13-FY14 estimates by 7%-13% after excluding the non-gaming businesses but have raised the NDPS by 25%-45% to align them with the company’s 80% dividend payout policy. Our new price target for the gaming-only MPHB is RM4.37/share, or RM3.89/share excapital repayment. 

Introducing our new gaming-only estimates.  We have adjusted our earnings model to reflect the just-concluded demerger exercise. Thus, we have cut Multi-Purpose Holdings Bhd’s (MPHB) FY13-FY14 estimates by 7% and 13% respectively but raised the NDPS by 25%-45% to match its dividend policy. For FY13, our cut-off period assumption for the non-gaming assets is only up to end-Jun 2013 with a dividend payout ratio of 65% (average of 50% and 80%). The FY14 estimates are for the NFO-only operation where the dividend payout ratio has been raised to 80% from our previous assumption of 50%. We expect 28%-27% interest savings of RM31m and RM27m in FY13-FY14 respectively. We also now expect MPHB to turn to a net cash position of RM183m in FY13 from a net debt position of RM473m in our previous estimates.

Expecting a premium valuation. Post-demerger, we expect the risk profile of MPHB to be the same as that of Berjaya Sports Toto Bhd (“BJTOTO”, UP; TP: RM3.88) given its relatively stable NFO business. The Beta of MPHB has increased to 1.201 from 1.092 a year ago largely due to the increased volatility in the trading of its shares ever since the announcement of its demerger exercise last year. In contrast, note that BJTOTO’s Beta has been fairly stable at 0.655 from 0.599 previously. As such, we believe that in the longer run, MPHB should trade at BJTOTO’s Beta level given its current status as a pure NFO player. At 0.655 Beta, MPHB should be valued at RM4.37/share or at an excapital repayment target price of RM3.89/share.

Subscribe to MPHBC share for free financial services business. MPHB Capital Bhd’s (“MPHBC, NOT RATED) prospectus has revealed the latest value for its property assets. The audited NBV for  the property assets is RM1.03/share vs. our previous valuation of RM0.68/share. On the other hand, based on the latest market values as at 28 Feb, the property assets are valued at RM1.44/share. That said, in any case, subscribers will pay RM1.00/share for the MPHBC share and get its financial services business for free. We have decided to value the financial services business at a much lower multiplier given its relatively small size in earnings. We are pricing the financial services at 6x CY13 (from 12x), which is in line with the smaller insurer valuations like Pacific & Oriental Bhd (OP, TP: RM2.10), and this will add RM0.52/share to MPHBC valuation. Applying a 20% discount to its RNAV, the upside potential for subscribing to the shares is still 24%-58%.  

Still a good buying opportunity. The share price of MPHB has declined 12% from its recent high of RM4.09 after the share went ex-entitlement for the Offerfor-Sale for MPHBC on 27 May. This offers a buying opportunity as the gamingonly MPHB is valued at RM4.37/share, which comes with a 48 sen/share capital repayment to be paid in three months’ time. Together with its expected rising dividend yield, the potential total return for this stock is about 24%. As such, we are maintaining our OUTPERFORM rating with a revised price target of RM4.37/share, from RM4.31/RNAV share previously.

Source: Kenanga