Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK
Malaysia Steel Works (KL) Bhd (Masteel)
(June 3, 92 sen)
Reiterate neutral at 91.5 sen with target price of RM1: Masteel announced on June 2 that it has disposed of five million shares of RM1 each in wholly owned subsidiary, Bio Molecular Industries SB (BioM), for a cash consideration of RM1,000 to IBA Pharma SA (IBA).
The original issued and paid-up capital of BioM is 10 million shares of RM1 each.
BioM is principally engaged in the business of manufacturing and research and development of radio isotopes and radio-pharmaceuticals products for positron emission tomography (PET). The company is supposed to produce and market fluorine-labelled fluorodeoxyglucose (FDG), a diagnostic radio-pharmaceutical used in PET scans to detect and monitor the treatment of cancer.
To date, Masteel has invested about RM13.5 million in this company, which mainly covered the cost of the plant and a two-acre site in Sepang.
The new investor-cum-JV partner, IBA, is a wholly owned subsidiary of Ion Beam Application S A (IBA SA), which is listed on the pan-European stock exchange Euronet, and is a component of the BelMid Index.
IBA has undertaken to subscribe for another five million ordinary shares of RM1 each in the issued and paid-up capital in BioM upon signing the share purchase agreement with Masteel. It also agreed to absolve Masteel from the guarantee of about RM10 million for the purchase of cyclotron equipment from IBA SA for BioM.
Masteel's shareholding in BioM will be reduced to 45.34% on the completion of the above exercise plus capitalisation of additional capital injection in BioM, which we suspect will amount to RM3.5 million.
Masteel expects to incur a one-time disposal loss of about RM5.1 million from this transaction.
As we have expressed reservations on this investment since it was first announced in 2007, we are not surprised with the latest move to dispose of the stake at a loss. We have also not accounted for any contribution from this venture and think that the disposal loss can be categorised as an exceptional item, which would then not impact our core earnings estimates.
In view of this, we maintain our neutral recommendation on Masteel with a fair value of RM1. This is derived from five times EPS (earnings per share) and 0.59 times net tangible asset/share, or +1 standard deviation of the stock's historical trading band on FY10 numbers. ' OSK Research, June 3
This article appeared in The Edge Financial Daily, June 4, 2010.