Tenaga has made an offer to buy the remaining stock it does not own in Integrax at MYR2.75/share (20.6%/19% above our fair value/last closing price),  implying  a 14.5x  FY15 P/E and a price-to-book of 1.32x  for 9M14. We  deem  the  offer  as  fair,  as  Integrax  has  yet  to  achieve  any breakthrough in  securing new customers. We recommend  investors to accept the offer and revise our DCF-based TP to MYR2.75 (19% upside). 

Sole customer offers to buy remaining shares. Integrax  has received an  offer  from  major  shareholder  Tenaga  Nasional  (Tenaga)  (TNB  MK, BUY,  TP:  MYR15.50)  to  buy  the  remaining  shares  the  latter  does  not own at  MYR2.75/share.  Tenaga owns 22.12% of  Integrax and does not intend to maintain its listing status. Integrax owns two terminals, ie  Lekir Bulk  Terminal  (LBT)  (80%  stake)  and  Lumut  Maritime  Terminal  (50% less one share).  Tenaga is Integrax’s only customer at the LBT (90-95% utilisation  rate),  which  facilitates  the  import  of  coal.  In  FY11-13,  LBTcontributed  58.5%  of  its  total  earnings.  The  offer  comes  ahead  of Tenaga’s  upcoming  talks  with  Integrax  on  the  jetty  terminal  usage agreement (JTUA) 3, expected to commence in late 2017. The JTUA 3 is for the new 1000MW brownfield unit (M5) awarded to TNB in Jul 2013. 

A natural deepwater draft area.  LBT,  located at Teluk Rubiah, has  a natural  deepwater  draft  of  at  least  20m.  This  is  suitable  for  very  large bulk carriers like 400,000-deadweight tonnage (dwt) Valemax  vessels. In 29  Dec  2009,  Integrax  entered  into  a  service  agreement  to  providetransshipment  services  for  Vale’s  (VALE  US,  NR)  iron  ore  distribution hub in Teluk Rubiah. As the agreement was only for 10 years, this led to a  tussle  between  the two founders, where one  favoured the deal while the  other  opposed  it  due  to  the  substantial  capex  involved.  When  theagreement lapsed in Oct 2010, Vale decided to invest in its own terminal. The terminal booked  its first  exports in Aug  2014. Integrax is still in talks with Vale to determine the latter’s level of participation in transshipment. 

Buy (Accept offer.)  Integrax has been trying to secure new  customers these  past  few  years,  albeit  unsuccessfully.  Our  earnings  projections reflecting  its  DCF  has  only  factored  in  Tenaga  as  its  only  client.  Its valuation would receive a boost if  it secures new customers  –  but with Vale out of the picture, it remains uncertain how far Integrax can grow its business. The offer is: i) 20.6% higher than our  previous MYR2.28 TP, ii) 19% higher than last Friday’s closing price,  iii) 14.5x of our FY15 EPS, and  iv) 1.32x its book value of MYR2.09 as at 30   Sep 2014.   We adviseminorities  to  accept  the  offer  and  upgrade  our  TP  to  the  offer  price  of 
MYR2.75.

Shareholder profile.  Below,  we append the latest shareholding profile of Integrax. As Tenaga does not intend to maintain Integrax’s listed status, a 90% acceptance (of the shares not owned by Tenaga) for the offer is required. It remains unclear whether its founder and current deputy chairman, Amin bin Halim Rasip  –  who  has a 21.37% indirect stake in Integrax  –  will accept the offer. Amin has been pushing hard for the Vale deal to go  through even though the  offer for the transshipment agreement  has lapsed. With Tenaga being LBT’s  sole customer, the bargaining chip is effectively in Tenaga’s hands.

Source: RHB