Maintain BUY on Long-term Prospects

We are neutral for now on the possible listing of Atlan’s automotive business in Hong Kong and maintain forecasts pending further details from the company. Maintain BUY with an unchanged MYR5.00 SOP-TP – 18% upside. We remain positive on Atlan’s long-term growth prospects, i.e. undervalued assets and M&A potential backed by strong balance sheet.

Listing on HKEX’s GEM

As announced, Atlan is exploring the possibility of listing its automotive business [under its subsidiary - United Industry Holdings Sdn Bhd (UIH)] on the growth enterprise market (GEM) on the Hong Kong exchange (HKEX). Among others, the stated rationales for the planned listing are: (i) to build and enhance its automotive business in Hong Kong; (ii) to unlock shareholder value in the automotive business; (iii) to enable UIH to gain standalone and direct access to the Hong Kong capital market; and (iv) to enhance UIH’s capital base and strengthen its financial position to achieve its long-term goals. Currently, 92% of UIH is held by Atlan and the remaining 8% by Cremorne Capital Fund Management Limited.

Estimates Unchanged; Plan Still Preliminary

We are neutral on this proposal pending further confirmations and details, which is still at a preliminary stage. We also maintain our earnings forecasts. Based on our estimates, the automotive segment contributes 21-22% to our FY20-22E pretax profit (FY19: 18%) for Atlan and 8% to our SOP-value of MYR6.25/share.

Still Positive on Long-term Prospects

We continue to like Atlan for its long-term growth prospects, from M&A potential [i.e. acquiring company(s) that supplement its existing businesses] supported by its strong balance sheet (MYR0.96 net cash/share), and revaluation/redevelopment potential of its Jalan Ampang and Bukit Kayu Hitam assets. Meanwhile, its duty free earnings could also recover once consumer spending improves.

SOP-TP Remains at MYR5.00 - 18% Upside

We remain positive on Atlan’s long-term prospects based on still major revaluation upside for its land assets, especially Bukit Kayu Hitam, which we have only factored in a conservative revaluation assumption of MYR2.50 psf vs. previous land disposals at MYR3.74 psf.

Risk Statement

There are several risk factors for our earnings estimates, price target, and rating for Atlan. Adverse changes in sales volume, selling prices and operating expenses may lead to lower earnings for Atlan. Increasing competition and weak consumer sentiment are additional earnings risk factors.

Source: Maybank Research - 22 Jul 2019