Sacofa acquisition a boost for CMS

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KUCHING: Analysts are very optimistic on Cahya Mata Sarawak Bhd’s (CMS) acquisition plan for a 50 per cent stake in Sacofa Sdn Bhd for RM186.8 million cash.

This was reflected in CMS’ stock yesterday which rose 20 sen or 4.44 per cent with 5.36 million shares traded. It closed at RM4.70 per share.

AllianceDBS Research Sdn Bhd said the deal roughly values Sacofa at 7.2 times its historical price earnings ratio (PE) and 1.1 times historical price to book value, which it thought was fairly attractive despite the smaller geographical footprint and lack of board control.

“For comparison, the closest Malaysia-listed peer such as OCK Group Bhd is trading at 15 times its financial year 2015 (FY15) PE, while most Indonesian tower companies are trading at more than 20 times FY15 PE,” it estimated in its report yesterday.

“We expect this acquisition to be completed by the second half of 2H15 and contribute to CMS earnings starting FY16F. We lift our FY16F to FY17F earnings per share forecast by 13 times.”

CMS has entered into a conditional share purchase agreement with the State Financial Secretary on behalf of the State Government of Sarawak for the proposed acquisition of a 50 per cent stake in Sacofa.

As the sole provider of telecommunication towers to telco players in Sarawak, Sacofa has a 20-year concession to build, manage, lease and maintain telecommunication towers in Sarawak.

It currently leases more than 600 telecommunications towers to celco players Celcom, DiGi and Maxis.

After paying for the planned investments, analysts at Maybank Investment Bank Bhd (Maybank IB Research) said CMS still has a solid war chest of RM569 million in cash for further acquisitions.

Based on Sacofa’s reported FY13 net profit of RM52 million and net tangible assets of RM344 million, it said CMS is paying seven times earnings and 1.1 times its price to net tangible assets.

“With just seven years of remaining concession period, it would seem that CMS is paying full value for Sacofa,” it observed. The upside would thus have to come from an extension to Sacofa’s concession period beyond 2022 and new businesses that Sacofa can bring to the table.

“Overall, we are positive on the acquisition as it would further enhance CMS’ recurring income base. Based on Sacofa’s FY13 net profit of RM52 million which we expect to be sustainable, the potential enhancement to our FY15, FY16F and FY17F net profit forecasts for CMS at four, 6.5 and 7.9 per cent respectively.

“We put our earnings forecasts and RM4.80 target price under review pending further details from the management. Including CMS’ recent acquisition of an additional five per cent stake in OM Sarawak Sdn Bhd, the total potential upside to our FY15 to FY17 earnings per share forecasts is 7.1 to 11.5 per cent.”