Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: AMMB
Pos Malaysia Bhd
(April 25, RM3.23)
Maintain hold at RM3.37 with fair value of RM3.95: We maintain our 'hold' on Pos Malaysia Bhd (Pos) based on a 10% discount to our unchanged discounted cash flow-value of RM4 per share (weighted average cost of capital: 8.2%, terminal growth: 2%) and surplus of 35 sen per share from the implied sale of unregulated land.
As we had anticipated, Khazanah Nasional's sale of a 32.2% stake in Pos was won by DRB-Hicom Bhd, with the winning bid of RM3.60 per share ' a 6.8% premium to last Friday's close.
Key details of the winning bid were: (i) Payment mechanism wasn't included in the announcement; (ii) The deal should be completed by end-June 2011, subject to the amendments to government's Golden Share in Pos; (iii) The amendments include the government's reservation to appoint up to two board members in Pos and the removal of rights to appoint the chairman and managing director and fix their remuneration. The modifications, however, may still include government approval of any future voluntary separation scheme (VSS) for Pos staff; and (iv) The offer price is conditional upon the liberalisation of land usage for Pos' 16 plots of identified land regulated by the Federal Land Commissioner (FLC). In the event the variation does not happen by December 2011, DRB-Hicom will be refunded 10 sen per share or RM17.3 million. The amendments will provide for the inclusion of commercial use (over and above the mandatory postal use), commercial development and outright sale.
While we have included ready-for-sale Pos land which is not regulated by the FLC in our valuation (market value of landbank), the most valuable land which falls under FLC's ambit is Pos' 3.1acres of postmen's quarters behind the Pudu Jail land redevelopment. We are positive about the liberalisation negotiation on the land, with a potential surplus of 19 sen per share just from an outright sale.
We believe that with the impending entry of DRB-Hicom and its property development arm Hicom Properties Sdn Bhd, Pos may co-develop the land with the new owners.
DRB-Hicom also plans to revitalise Pos' logistics division, which has taken a back seat under the current management. DRB-Hicom's ultimate shareholder, Tan Sri Syed Mokhtar Al-Bukhary, is a known logistics magnate, providing Pos a growth platform as a last-mile volume throughput for his extensive retail-based and industrial interests.
While we believe DRB-Hicom's bid replicates our valuation on Pos' current operations, investors looking at participating in Pos' imminent real-estate development should accumulate as our fair value only imputes its ready-for-sale land at market value. However, development of the landbank will be earnings accretive over a longer period, vis-a-vis an outright sale. ' AmResearch, April 25
This article appeared in The Edge Financial Daily, April 26, 2011.
Company Name: POS MALAYSIA BHD
Research House: AMMB
Pos Malaysia Bhd
(April 25, RM3.23)
Maintain hold at RM3.37 with fair value of RM3.95: We maintain our 'hold' on Pos Malaysia Bhd (Pos) based on a 10% discount to our unchanged discounted cash flow-value of RM4 per share (weighted average cost of capital: 8.2%, terminal growth: 2%) and surplus of 35 sen per share from the implied sale of unregulated land.
As we had anticipated, Khazanah Nasional's sale of a 32.2% stake in Pos was won by DRB-Hicom Bhd, with the winning bid of RM3.60 per share ' a 6.8% premium to last Friday's close.
Key details of the winning bid were: (i) Payment mechanism wasn't included in the announcement; (ii) The deal should be completed by end-June 2011, subject to the amendments to government's Golden Share in Pos; (iii) The amendments include the government's reservation to appoint up to two board members in Pos and the removal of rights to appoint the chairman and managing director and fix their remuneration. The modifications, however, may still include government approval of any future voluntary separation scheme (VSS) for Pos staff; and (iv) The offer price is conditional upon the liberalisation of land usage for Pos' 16 plots of identified land regulated by the Federal Land Commissioner (FLC). In the event the variation does not happen by December 2011, DRB-Hicom will be refunded 10 sen per share or RM17.3 million. The amendments will provide for the inclusion of commercial use (over and above the mandatory postal use), commercial development and outright sale.
While we have included ready-for-sale Pos land which is not regulated by the FLC in our valuation (market value of landbank), the most valuable land which falls under FLC's ambit is Pos' 3.1acres of postmen's quarters behind the Pudu Jail land redevelopment. We are positive about the liberalisation negotiation on the land, with a potential surplus of 19 sen per share just from an outright sale.
We believe that with the impending entry of DRB-Hicom and its property development arm Hicom Properties Sdn Bhd, Pos may co-develop the land with the new owners.
DRB-Hicom also plans to revitalise Pos' logistics division, which has taken a back seat under the current management. DRB-Hicom's ultimate shareholder, Tan Sri Syed Mokhtar Al-Bukhary, is a known logistics magnate, providing Pos a growth platform as a last-mile volume throughput for his extensive retail-based and industrial interests.
While we believe DRB-Hicom's bid replicates our valuation on Pos' current operations, investors looking at participating in Pos' imminent real-estate development should accumulate as our fair value only imputes its ready-for-sale land at market value. However, development of the landbank will be earnings accretive over a longer period, vis-a-vis an outright sale. ' AmResearch, April 25
This article appeared in The Edge Financial Daily, April 26, 2011.
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