Hot Stock NCB shares fall 2.04% in early trade on profit taking

by **Cals** Wed 21 Oct 2015, 04:11

Hot Stock

[size=28]NCB shares fall 2.04% in early trade on profit taking

By Meena Lakshana / theedgemarkets.com | October 20, 2015 : 1:45 PM MYT

KUALA LUMPUR (Oct 20): NCB Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 0.80, Fundamental: 2.05) shares fell as much as 2.04% in morning trade today following MMC Corporation Bhd ( Valuation: 2.40, Fundamental: 1.10)'s offer to privatise the company yesterday.

This is despite a note from MIDF Research today saying MMC's offer to take over NCB at RM4.40 per share is fair.

The stock shed as much as 9 sen to RM4.32 before paring losses and settling at RM4.35 at midday break. A total of 99,000 shares were traded.

NCB shares have been gaining steadily since June 8. The stock reached a year high of RM4.54 on Sept 8, Bloombergdata showed.

When contacted, SJ Securities Sdn Bhd remisier KC Goh said the stock may have declined on profit taking.

"The chart shows that money started flowing in on Oct 7 at RM4.25," he said.

"Yesterday's close of RM4.43 is close to the high of RM4.54 achieved on Sept 8.

"Investors might see RM4.43 as the peak so started taking profits," he added.

Yesterday, MMC announced it plans to acquire an additional 53.42% stake in NCB Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 0.80) from Permodalan Nasional Bhd (PNB) and AmanahRaya Trustees Bhd for RM1.11 billion or RM4.40 per share, thereby increasing its holding in the port operating company to 83.55% from its current stake of 30.13%.

This would trigger a mandatory general offer for the remaining 16.45% shares in NCB it doesn't already own and pave the way for MMC to become the country's largest port operator.

MMC does not intend to maintain the listing status of NCB.

In a filing with Bursa Malaysia, MMC said its wholly-owned subsidiary MMC Port Holdings Sdn Bhd signed a conditional sale of share agreement with PNB and AmanahRaya Trustees yesterday to acquire 251.2 million NCB shares, representing a 53.42% equity interest in NCB.

The RM4.40 per share offer represents a premium of 1.38%, 2.56%, 6.28% and 18.6% to the five-day, one-month, three-month and six-month volume-weighted average prices of NCB shares up to Oct 16 of RM4.34, RM4.29, RM4.14 and RM3.71 respectively.

The offer also implies a price-to-book multiple of 1.47 times based on the audited consolidated net assets of NCB as at Dec 31, 2014, and an enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) multiple of 17.48 times.

In a note today, MIDF Research said the offer price is fair.

"While the premium of 2.6% over one-month may seem unattractive, we note that the share price has gained 93.4% year-to-date attributed by improved earnings and purchases of shares by MMC," the note read.

"Meanwhile, we view the implied PB (price-to-book multiple) and EV/EBITDA of 1.47 times and 17.48 times as fair due to earnings instability in 2013 to 2014, loss-making subsidiary Kontena Nasional and illiquidity of trading (NCB's shareholding spread is below 75%)," it added.

MIDF Research maintained its "neutral" call on the stock, with a higher target price of RM4.40 from RM3.45.

Meanwhile, Affin Hwang Investment Bank ([You must be registered and logged in to see this image.] Valuation: N/A, Fundamental: N/A) said today although MMC's offer to privatise NCB, if successful, will enhance its ports portfolio, it is expected to put a dent in its 2016 earnings.

In a note, Affin Hwang analyst Lim Tee Yang said MMC's estimated 2016 (2016E) earnings may erode by 6.5% as the higher finance costs from issuing debt of RM1.44 billion to privatise NCB will outweigh the consolidation NCB's earnings on the assumption of a conservative 5% growth to NCB's annualised 2015E earnings.

"Assuming an interest rate of 5%, MMC would incur RM54 million in additional after-tax financing costs vs. NCB's annualised 2015E earnings of RM37 million," he said.

"MMC's gross debt or equity will increase from 0.8 times to 0.95 times from this privatisation exercise," he added.

He noted that NCB has a fairly small net debt position of RM79 million, and NCB's earnings contribution to MMC will be less than 10% even after privatisation.

Lim also said the privatisation of NCB will not come cheap to MMC, as it would acquire the remaining 16.5% in NCB at an additional cost of RM340 million.

"At RM4.40 per NCB share, MMC is valuing NCB at a price to earnings ratio (PER) of 55 times (or EV/EBITDA of 12.3 times) based on annualised 2015E earnings per share (EPS) of 8 sen," he said.

"In comparison, Westports (Holdings Bhd) currently trades at 2015E PER of 26 times," he added.

Lim said despite this, NCB's future earnings may improve from rising container throughput and potential container tariff revisions and NCB would increase MMC's presence in the central region of Peninsular Malaysia as MMC's ports are located in Johor.

Affin Hwang maintained its "buy" call on MMC with an unchanged target price of RM2.60.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)
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