KUCHING: Multi-Purpose Holdings Bhd (MPHB) was recently reviewed by analysts as new key catalysts could potentially re-rate the company’s stock further.
According to the research arms of Kenanga Investment Bank Bhd (Kenanga Research), a key catalyst was the cheap stock. Secondly, the group was transforming into a clean-cut number forecast operator (NFO) and lastly, there could be a special dividend to reward investors.
For the record, MPHB was a conglomerate, involved in the core business of gaming, stockbroking, financial services, hospitality and properties. The group was gaming-centric with the NFO business contributing 75 per cent of the group’s net profit currently.
The management had indicated its intention to dispose off its non-gaming business to focus on the gaming operation. Currently, MPHB was in the middle of an asset rationalisation exercise which was expected to take one to two years to be completed.
With the disposal, it would become a pure NFO play, which would force the market to push its valuation probably up to par.
MPHB was trading at 11.2 times in the calender year 2012 price earning ratio, which was a 23 per cent discount to another listed NFO player, Berjaya Sports Toto Bhd (B-Toto).
“This we believe is mainly due to MPHB being an investment company, which typically commands the lower valuation compared to single-purpose business entity.
“Even so, at its current price of RM2.88 per share, one is buying the stock for almost free the worth of its non-gaming assets of RM1.77 per share,” said Kenanga Research.
Since December 2011, MPHB had completed the disposal of Menara MPHB for RM54 million and Flamingo Downtown in Pudu for RM375 million, which was part of the exercise to unlock the group’s value as the stock was always trading at discount to its peers.
“Hence, this rationalisation exercise should help to re-rate stock,” added the research house.
Apart from the re-rating catalyst, MPHB was expected to raise fund from the disposal exercise. The research house said that, “We have estimated that its non-gaming assets are worth RM1.44 billion based on the net book value.
“If MPHB were to use the proceeds to redeem all its outstanding debts, the group will become a net cash company. With a net cash of RM805 million, MPHB would be able to distribute 56 sen as a special dividend to reward shareholders, in addition to its already attractive regular gross dividend yield of six to seven per cent,” added the research house.
Kenanga Research expected the core earnings to grow at 14 per cent three year compounded annual growth rate over the next three years, mainly led by its NFO business under 100 per cent owned Magnum Corp Sdn Bhd (MCSB).
“Our earnings model still includes contributions from the non-gaming businesses at this juncture, although as mentioned, their proposals are likely to result in a better valuation of the stocks,” said the research house.
The asset rationalisation exercise according to Kenanga Research was the key to unlocking MPHB’s value. The research house had maintained a fair value of RM3.72 per share, a 10 per cent discount to its realisable net asset value.