KUALA LUMPUR: AmInvestment Research is positive on Pecca Group’s plan to acquire a 51% equity interest in Rentas Health, a private company involved primarily in the supply of personal protection equipment (PPE) and medical equipment) for RM100mil.
“Based on our estimates, the acquisition would enhance Pecca’s FY22F EPS by about 40% underpinned by Rentas Health’s additional business which would come from the distribution and selling of PPE and medical equipment,” it said.
The RM100mil will be satisfied via RM50mil cash and RM50mil via 11.99 million new Pecca shares at an issue price of RM4.17 a share.
“Based on the FY22F profit guarantee of RM11.7mil from Rentas Health (for a 51% equity stake), the price tag of RM100mil effectively values the acquisition of Rentas Health at about FY22F P/E of 8.5 times, which we see as reasonable,” it said.
AmInvest Research pointed out it has classified this deal as a “related party transaction” as Rentas Health is 99.99%-owned by Pecca’s managing director and substantial shareholder Datuk Teoh Hwa Cheng’s daughter, Teoh Zi Yuen.
Prior to the acquisition, Rentas Health was Pecca’s client i.e. Pecca primarily recognises revenue from its healthcare segment by manufacturing PPE products (face masks, face shield, jumpsuits etc.). Rentas would then distribute these products.
The research house said based on its understanding, post-acquisition, Pecca’s PPE manufacturing business, combined with Rentas Health’s distribution business would form the group’s healthcare division.
AmInvest Research said its estimates reflect the full dilution from the enlarged share base of 195 million shares from the deal; and an additional RM11.7mil contribution at the net profit level from the acquisition of Rentas Health.
After the acquisition, Pecca’s net cash position will drop to RM18.5mil from RM68.5mil as at March 31, 2021. This translates to about 10 sen a share.
Post-acquisition, its fair value shall increase to RM2.87 a share (from RM1.99 currently). The basis of its potential revised FV is an additional RM11.7mil on the net level from the healthcare business.
“We will not be factoring in these additional profits and potential FV pending completion of the deal,” it said.
Hence, the research house is maintaining underweight on Pecca Group with an unchanged fair value of RM1.99 a share based on sum-of-parts (SOP) valuation.
“We maintain our view that while we are optimistic on Pecca’s immediate outlook due to: i) the ongoing SST exemption – which will bolster consumer demand for vehicles; and ii) Proton’s monstrous growth and Perodua’s dominance in the domestic auto sector, valuations are unattractive and have gone way ahead of fundamentals at 34 to 33 times FY21–22F earnings,” it said, as it maintained an underweight stance.
AmInvest Research only valued the group’s healthcare segment at a P/E of 13 times – which is at a discount to its in-house healthcare sector average of 30 times for FY22F due to Rentas Health’s smaller size; and 2) its healthcare products being at the lower end of the supply chain.