Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: MAYBANK
PLUS Expressways Bhd
(June 16, RM3.33)
Maintain buy at RM3.33 with target price of RM4.20: PLUS' acquisition of Teras Teknologi will enable it to derive some future cost savings from the procurement of toll systems and equipment, and raise its value chain in providing total toll-related solutions. The pricing seems fair for a related party transaction. No change to our forecasts as the earnings increment is marginal. PLUS remains a buy for its rising dividend yield potential with a discounted cash flow-based target price of RM4.20.
PLUS has proposed to acquire a full stake in Teras Teknologi Sdn Bhd from its parent, UEM Group, for RM44 million cash. Established in 1994 as an information and communications technology (ICT) provider, Teras also offers facilities management, outsourcing, e-commerce services and Internet services. It supplies, install and maintain toll systems and equipment for highways. Teras introduced the Toll Revenues and Collection System, Touch 'n Go and non-stop vehicle on-board unit known as SmartTAG to Malaysia.
Teras' businesses are divided into three market segments: (i) transportation which deals with the payment systems, (ii) property which provides safety and security solutions, and (iii) e-Business which provides and manages enterprise-wide solutions. Nonetheless, we suspect that its revenue driver is in the transportation segment. Its clients for toll systems and equipment are not confined within the PLUS group, but includes other toll operators in Malaysia.
PLUS will be paying 10 times historical earnings, and one time P/B for Teras which reported a net profit of RM4.4 million in 2009, and net assets of RM50.1 million as at Dec 31, 2009. As Teras has since paid a dividend of RM6 million in March 2010, PLUS will be buying Teras' adjusted net assets of RM44.1 million. We understand that a major portion of the net assets comprise receivables, and a financial due diligence has been conducted on Teras by PLUS. This gives us some comfort against the likelihood of potential investment write-downs by PLUS later.
Teras fits into PLUS' requirements for diversification into related businesses. We believe that PLUS can derive some cost savings from the future procurement and maintenance of toll equipment under Teras. Teras will also complement PLUS in the bidding for overseas tolled road concessions as PLUS will be able to offer itself as a 'total solutions' provider. ' Maybank IB Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2010.
Company Name: PLUS EXPRESSWAYS BHD
Research House: MAYBANK
PLUS Expressways Bhd
(June 16, RM3.33)
Maintain buy at RM3.33 with target price of RM4.20: PLUS' acquisition of Teras Teknologi will enable it to derive some future cost savings from the procurement of toll systems and equipment, and raise its value chain in providing total toll-related solutions. The pricing seems fair for a related party transaction. No change to our forecasts as the earnings increment is marginal. PLUS remains a buy for its rising dividend yield potential with a discounted cash flow-based target price of RM4.20.
PLUS has proposed to acquire a full stake in Teras Teknologi Sdn Bhd from its parent, UEM Group, for RM44 million cash. Established in 1994 as an information and communications technology (ICT) provider, Teras also offers facilities management, outsourcing, e-commerce services and Internet services. It supplies, install and maintain toll systems and equipment for highways. Teras introduced the Toll Revenues and Collection System, Touch 'n Go and non-stop vehicle on-board unit known as SmartTAG to Malaysia.
Teras' businesses are divided into three market segments: (i) transportation which deals with the payment systems, (ii) property which provides safety and security solutions, and (iii) e-Business which provides and manages enterprise-wide solutions. Nonetheless, we suspect that its revenue driver is in the transportation segment. Its clients for toll systems and equipment are not confined within the PLUS group, but includes other toll operators in Malaysia.
PLUS will be paying 10 times historical earnings, and one time P/B for Teras which reported a net profit of RM4.4 million in 2009, and net assets of RM50.1 million as at Dec 31, 2009. As Teras has since paid a dividend of RM6 million in March 2010, PLUS will be buying Teras' adjusted net assets of RM44.1 million. We understand that a major portion of the net assets comprise receivables, and a financial due diligence has been conducted on Teras by PLUS. This gives us some comfort against the likelihood of potential investment write-downs by PLUS later.
Teras fits into PLUS' requirements for diversification into related businesses. We believe that PLUS can derive some cost savings from the future procurement and maintenance of toll equipment under Teras. Teras will also complement PLUS in the bidding for overseas tolled road concessions as PLUS will be able to offer itself as a 'total solutions' provider. ' Maybank IB Research, June 16
This article appeared in The Edge Financial Daily, June 17, 2010.
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