KUALA LUMPUR: Rohas Tecnic Bhd
's acquisition of 75% equity interest in HG Power Transmission Sdn Bhd (HGPT) represents a price-earnings ratio (PER) of 11.8x, which is substantially lower than the industry average of 17.4x, said Hong Leong Investment Research.
THe ex-cash PER of the deal is lower at about 7.1x when taking into account the RM50mil of net cash on HGPT's balance sheet as at end-2016.
The issuance of new shares to satisfy more than 75% purchase consideration further enhances the attactiveness of the deal as the implied PER of issue price of new shares is higher than the ex-cash PER of HGPT.
Hong Leong Investment Research added that there will be no negative impact from the cost overrun issue, which dragged down the earnings of HGPT in H1 2017.
"We reduce FY17 earnings per share estimate by 13.6% but raise FY18-19 EPS forecast by 2.6-4.0% respectively after factoring in earnings contribution from HGPT and enlarged share base resulting from the acquisition."
The research firm has maintained its Buy call with a target price of RM1.67. It cited Rohas' exposure to Asean's fast economic growth and the acquisition of HGPT which is expected to open up more EPCC contract opportunities for ROhas.
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