BIOALPHA HOLDINGS BHD
By CGS CIMB
Target price: 44 sen
BIOALPHA has proposed to issue new shares totalling not more than 10% of its issued 810,000,000 share base, which could raise around RM20mil assuming the new shares are priced at 25 sen each.
CGS CIMB said it believed the new share placement is meant to fund the acquisition of North West Enterprise Sdn Bhd.
The group has signed a memorandum of understanding to acquire a majority stake in North West Enterprise.
North West Enterprise is involved in the manufacture, trading and supply of hotel amenities, personal care products and instant beverage in sachets for hotels and other establishments in the hospitality industry. It has a track record of more than 30 years. Bioalpha has not finalised the purchase price.
CGS CIMB believed there is synergy in acquiring a stake in the North West Enterprise as it offered a distribution channel to hotels all across the country.
It said the company could distribute its local tea products such as tongkat ali tea, kacip fatimah tea and bumi hempedu tea to tourists staying in the hotels.
It said there are no details yet on the profitability of North West Enterprise but, in the worse case of zero profit from North West Enterprise, the potential dilution to financial year 2019 to 2020 (FY19-FY20) earnings per share (EPS) is around 6%.
The target price CGS CIMB has set would fall from 44 sen 50 41 sen, assuming no EPS enhancement from the acquisition, which is unlikely due to the potential anticipated synergies from buying the company.
The stock remains an “add”.
“Until more financial details on North West Enterprise are available, we maintain our EPS forecasts and target price, based on an unchanged 20 times forecast 2019 price-to-earnings (P/E) ratio, which is a 20% discount to our consumer target P/E for forecast 2019 of 25 times,” the brokerage said.
MATRIX CONCEPTS HOLDINGS BHD
By RHB Research Institute
Target price: RM2.40
MATRIX Concepts has announced a joint-venture (JV) agreement with Bangun Kosambi Sukses (BKS) and Nikko Sekuritas Indonesia (NSI) to jointly develop an Islamic financial district on an 8.9-acre land in West Kosambi Village, Kosambi District, Tangerang Regency.
RHB Research is positive on this JV backed by Indonesia’s biggest conglomerate, the Salim Group.
BKS is owned by the Salim Group, which is involved in the property development for PIK 2 Sedayu Indo City – spanning 1,000 hectares – in Indonesia. NSI is an investment banking firm. The signing of the JV agreement marked the maiden step for Matrix to enter the Indonesian property market.
RHB Research said it liked Matrix’s efforts in venturing overseas, as the Malaysian property market is undergoing a soft period.
“In the long run, the domestic market may also become more saturated with players. Indonesia – South-East Asia’s most populous country – has market growth potential,” it added.
The JV will require the company to inject a share capital of RM125mil for a 30% stake – to be paid in two tranches.
The first tranche (RM65mil) will be paid in six months and the second tranche (RM60mil) will be paid after that.
RHB Research believed Matrix would likely finance this with a combination of internal funds, debt and potential new equity, given Matrix’s current net gearing of 6% as well as its small-scale project in Australia.
The research house also believed that the potential interest expenses and dilution from the new equity should be manageable for the company, especially in the initial few years.
“Having said that, Matrix may become more conservative on its dividend payout ratio, which will likely be kept below 40% (its policy) going forward,” it said.
RHB Research has maintained its “buy” call as the details on financing as well as the project’s gross development value, phases and development components have yet to be revealed. It is, therefore, keeping its earnings forecasts and revised net asset value (RNAV) estimates unchanged.
By Affin Hwang
Target price: RM1.60
KELINGTON’S next wave of growth will likely see the group leveraging on its past experience, moving upstream and expanding into the supply and trading of industrial gases.
Kelington’s venture into the business of supplying industrial gases is part of the management’s long-term group growth initiative.
Once the first plant is up and running by September 2019, the group will effectively be the second-largest liquid carbon dioxide player in town.
Affin Hwang believed that prospects are bright as the usage of industrial gases continued to expand rapidly into various industries.
Kelington’s forecast 2019 and 2020 core net profit are set to post three-year compound annual growth rates (CAGRs) of 13% and 22%, respectively, driven by prospective growth in China and Singapore ultra-high purity contract flows.
The research house expected a progressive ramp-up at Kelington’s liquid carbon dioxide plant and future expansion projects to be key earnings re-rating catalysts in the coming years, which would also help to lift the overall group margin.
Affin Hwang has initiated a coverage on Kelington with a “buy” call and 12-month target price of RM1.60, based on a forecast financial year 2019 P/E ratio of 16 times.
The research house said it liked the company for a few reasons – being that the semiconductor industry is still poised for growth, a huge China presence and benefits from “Made in China 2025” masterplan.