RHB mantains Buy on Sunway, raises TP to RM1.85

KUALA LUMPUR: RHB research is positive on Sunway Bhd's planned acquisition of Blacktop Industries Sdn Bhd in two tranches for RM70.09mil.

"We are positive on this, as it allows the group to penetrate into new markets and increase market share to achieve greater economies of scale," it said in a research note.

"Its decision to strengthen other segments amidst a slow property market is also strategic."

RHB maintained its buy call on Sunway, its preferred sector pick, with a higher target price of RM1.95 from RM1.83 previously.

According to RHB, Sunway's objective in the purchase is to penetrate new geographical regions and grow its market share.

RHB ascribed a higher price-earnings for its "others" division of 15x from 12x due to its wider market share in the quarry segment. 

"This acquisition should increase Sunway’s premix plants to 22 from 13. The group currently has a market share of 10% aggregate and premix sales in the Klang Valley and 6% nationwide."

The group's quarry division current contributes less than 10% of total PATMI.

To recap, the purchase of Blacktop will be funded via internal funds, and carried out in two tranches comprising a 60% stake of RM52.05mil by 2Q19 and the remaining 40% stake at RM28.04mil by 2Q20.

Blacktop is involved in operating quarries and premix plants to produce and market aggregates and bituminous premix as well as rent mobile equipment.

It holds 50% equity interest in both Blacktop Lanchang SB (BLSB) and Can Technical Services SB (CTSSB), as well as a 49% stake in TKM SB (TKMSB).