News  Last Friday, TENAGA (OP; TP: RM14.65) offered to acquire all shares that it does not already own in INTEGRA at RM2.75/share.

 TENAGA is already the largest shareholder with a 22.1% stake in INTEGRA currently.

 In addition, TENAGA is also the largest client of INTEGRA, which contributed 100% to INTEGRA's revenue and 72% of its PBT in FY13 whereby Lekir Bulk Terminal provides coal import handling services for TENAGA’s Manjung Power Plant in Manjung, Perak.

Comments  This offer came as a surprise to us as we do not expect such a takeover from the group’s largest shareholder and client who have been relatively passive in its involvement of INTEGRA’s business operations in the past.

 The offer price implies CY15 PER of 18.9x, which is at 5.8% premium to its local peers average of 17.9x. We believe the offer price is favourable to INTEGRA’s shareholders as its peers have more diversified client portfolio and larger port handling capacity as compared to INTEGRA.

 On top of that, the offer price is at a 11.3% premium to our DCF-derived TP of RM2.47, which has factored in the NPV from the upcoming JUTA-M4 project with TENAGA, expected to come on stream in CY15.

 Therefore, we advise the shareholders of INTEGRA to accept the offer as it is at a premium to its intrinsic value.

Outlook  The JUTA-M5 deal is still undergoing negotiations with TENAGA where INTEGRA is still negotiating the terms and conditions. We anticipate that the agreement could be secured in 2016, but the earliest contribution from this project is expected to only come in 2018.

 Post privatisation, we believe Lekir Bulk Terminal could be utilised fully by TENAGA for their power plant projects in the Manjung area in the future.

Forecast  We maintain our forecasts and assumptions.

Rating ACCEPT OFFER

Valuation  Our previous TP is RM2.47 (WACC: 11.1%, g: 2.0%).

We now peg our TP to TENAGA’s offer price of RM2.75.

Risks to Our Call  Potential resistance from other major shareholders who might prefer INTEGRA to maintain their listing status to pursue their plans to collaborate with Vale in the future by utilising LBT as their platform.

Source: Kenanga