Second Revision

Selangor Properties Bhd (SPB) announced that it had received a letter from its major shareholder, Kayin Holdings Sdn Bhd (Kayin) to revise the selective capital reduction (SCR) offer price to RM6.30/share from RM6/share. Kayin is the private investment vehicle of the Wen family.

To recap, the Wen family, via Kayin, had offered to take the group private at RM5.70/share via a SCR and repayment exercise in October last year. It then raised its offer by 30 sen to RM6/share in December last year.

The offer is subject to approval from minority shareholders and relevant authorities. Having said that, this proposal will require the approval of 75% of the minority shareholders of SPB. In other words, Kayin, which controls 68.2% of SPB, will not be able to vote on this proposal.

Post SCR exercise, Kayin and the PACs will become the sole ordinary shareholder of SPB, which will be de-listed from the main market of Bursa Malaysia.

Our View

The revised SCR offer price translates to 0.8x CY19 P/B, a premium to the stock’s 5-year historical P/B ratio of 0.6x and the sector’s average CY19 P/B ratio of 0.6x.

Although SPB owns prime landbank in the Damansara Heights Area, we believe opportunities for landbank value realisation is slim in the next 12-month. This is in view of the prevalent oversupply of commercial and luxury residential sectors. In addition, the prolonged delay in new launches would further dampen the group’s earnings prospects. Given the challenging market environment and low trading liquidity of SPB’s shares, the SCR represents an opportunity for entitled shareholders to realise their investment in SPB.

Forecasts

No change to our FY19-21 earnings projections.

Valuation

We raise our target price to RM6.30, at par with the revised offer price from Kayin. We advise investors to accept the offer.

Source: TA Research - 16 Jan 2019