Stock Name: PELIKAN
Company Name: PELIKAN INT.CORPORATION BHD
Research House: CIMB
Pelikan International Corp Bhd
(April 26, RM1.32)
Maintain trading buy at RM1.27, target price at RM1.65: The Edge weekly reported that Pelikan's president Loo Hooi Keat is one of the parties interested in buying Khazanah Nasional Bhd's 32.2% stake in Pos Malaysia Bhd.
Loo is executive vice-president of Konsortium Logistik Bhd. We think that Loo's vehicle for such a deal is likely to be Konsortium rather than Pelikan given that Pelikan's management has its hands full this year with merging its operations with recently acquired Europe-based stationery company Herlitz. Furthermore, Pos Malaysia offers little in terms of synergies for Pelikan.
We continue to rate Pelikan a trading buy instead of an outright outperform as we want to see if management delivers the touted cost savings and economies of scale from Herlitz.
Our target price remains unchanged at RM1.65, based on 7.8 times calendar year 2011 price-to-earnings (PE) ratio, a 40% discount to the regional sector target PE of 13 times to mainly reflect the execution risks.
This news of Loo's interest has taken us by surprise. We believe Pelikan needs more manpower now that Herlitz is under its umbrella.
We are of the view that management could be spread too thin and would have difficulty coping with Pos Malaysia. The Herlitz acquisition, which was completed in early April, is expected to almost double Pelikan's revenue.
Also, Pos Malaysia offers little in terms of synergies for Pelikan unless Pelikan wants to sell stationery in post offices, which we believe is unlikely.
With the acquisition of Herlitz, more than 80% of Pelikan's revenue will come from Europe, which should be Pelikan's focus, not the domestic market. Logically, interest in Pos Malaysia, if any, should come from Konsortium Logistik rather than Pelikan.
A third reason is that the Herlitz acquisition has taken Pelikan's net gearing to around 40%. Acquisition of a stake in Pos Malaysia could push its net gearing close to 0.8 times. As the company completed a rights issue early this year, it is unlikely to consider another capital-raising exercise so soon. - CIMB Research, April 26
This article appeared in The Edge Financial Daily, April 27, 2010.
Company Name: PELIKAN INT.CORPORATION BHD
Research House: CIMB
Pelikan International Corp Bhd
(April 26, RM1.32)
Maintain trading buy at RM1.27, target price at RM1.65: The Edge weekly reported that Pelikan's president Loo Hooi Keat is one of the parties interested in buying Khazanah Nasional Bhd's 32.2% stake in Pos Malaysia Bhd.
Loo is executive vice-president of Konsortium Logistik Bhd. We think that Loo's vehicle for such a deal is likely to be Konsortium rather than Pelikan given that Pelikan's management has its hands full this year with merging its operations with recently acquired Europe-based stationery company Herlitz. Furthermore, Pos Malaysia offers little in terms of synergies for Pelikan.
We continue to rate Pelikan a trading buy instead of an outright outperform as we want to see if management delivers the touted cost savings and economies of scale from Herlitz.
Our target price remains unchanged at RM1.65, based on 7.8 times calendar year 2011 price-to-earnings (PE) ratio, a 40% discount to the regional sector target PE of 13 times to mainly reflect the execution risks.
This news of Loo's interest has taken us by surprise. We believe Pelikan needs more manpower now that Herlitz is under its umbrella.
We are of the view that management could be spread too thin and would have difficulty coping with Pos Malaysia. The Herlitz acquisition, which was completed in early April, is expected to almost double Pelikan's revenue.
Also, Pos Malaysia offers little in terms of synergies for Pelikan unless Pelikan wants to sell stationery in post offices, which we believe is unlikely.
With the acquisition of Herlitz, more than 80% of Pelikan's revenue will come from Europe, which should be Pelikan's focus, not the domestic market. Logically, interest in Pos Malaysia, if any, should come from Konsortium Logistik rather than Pelikan.
A third reason is that the Herlitz acquisition has taken Pelikan's net gearing to around 40%. Acquisition of a stake in Pos Malaysia could push its net gearing close to 0.8 times. As the company completed a rights issue early this year, it is unlikely to consider another capital-raising exercise so soon. - CIMB Research, April 26
This article appeared in The Edge Financial Daily, April 27, 2010.
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