THE BUZZ
According to today’s Business Times, DRB-HICOM (NOT RATED) has won the bid to take over national postal company Pos Malaysia. BT understands that DRB-HICOM will sign an agreement with Khazanah early next week to buy the 32% stake in Pos Malaysia at RM3.60 a share.
OUR TAKE
Not as attractive as we had expected. The reported offer price of RM3.60 per share is not very attractive as we had earlier expected as it represents only a premium of 4% based on yesterday’s closing of RM3.45, and is at a discount of 12% against our fair value of RM4.12 (see appendix overleaf). At RM3.60, this implies a PE valuation of 14.5x FY11 consensus EPS, which is in line with the global postal peer average.
Fair price paid for DRB. With DRB-HICOM’s intention to inject 70%-owned Bank Muamalat into Pos Malaysia’s 697 post offices, it is believed that the group would have to make huge investment in installing IT infrastructure and refurbishing the post offices nationwide. Besides, we do not discount the possibility that the Postal Bill Act may not be relaxed, notably on the usage of its land bank, other than for the provision of postal services. If so, Khazanah will probably demand a higher price as this would have unlocked the value of the vast land bank.
A Win-Win situation. The injection of Bank Muamalat into Pos Malaysia’s outlets will benefit both DRB-HICOM and Pos Malaysia. This will boost the latter’s retail business to offset the organic decline in its mailing business going forward. Although Pos Malaysia currently offers limited banking services on behalf of Maybank and RHB, we do not see this as a hindrance to Bank Muamalat in establishing a meaningful strategic tie-up with Pos Malaysia since the bank could still provide a wide range of banking services and function like an actual bank that has its own banking staff.
Maintain earnings forecast. Pending further announcements, we maintain our BUY call and fair value at RM4.12 based on SOP valuation. Meanwhile, the possible absence of a property development play capitalizing on the postal land bank may be a setback to investors.
According to today’s Business Times, DRB-HICOM (NOT RATED) has won the bid to take over national postal company Pos Malaysia. BT understands that DRB-HICOM will sign an agreement with Khazanah early next week to buy the 32% stake in Pos Malaysia at RM3.60 a share.
OUR TAKE
Not as attractive as we had expected. The reported offer price of RM3.60 per share is not very attractive as we had earlier expected as it represents only a premium of 4% based on yesterday’s closing of RM3.45, and is at a discount of 12% against our fair value of RM4.12 (see appendix overleaf). At RM3.60, this implies a PE valuation of 14.5x FY11 consensus EPS, which is in line with the global postal peer average.
Fair price paid for DRB. With DRB-HICOM’s intention to inject 70%-owned Bank Muamalat into Pos Malaysia’s 697 post offices, it is believed that the group would have to make huge investment in installing IT infrastructure and refurbishing the post offices nationwide. Besides, we do not discount the possibility that the Postal Bill Act may not be relaxed, notably on the usage of its land bank, other than for the provision of postal services. If so, Khazanah will probably demand a higher price as this would have unlocked the value of the vast land bank.
A Win-Win situation. The injection of Bank Muamalat into Pos Malaysia’s outlets will benefit both DRB-HICOM and Pos Malaysia. This will boost the latter’s retail business to offset the organic decline in its mailing business going forward. Although Pos Malaysia currently offers limited banking services on behalf of Maybank and RHB, we do not see this as a hindrance to Bank Muamalat in establishing a meaningful strategic tie-up with Pos Malaysia since the bank could still provide a wide range of banking services and function like an actual bank that has its own banking staff.
Maintain earnings forecast. Pending further announcements, we maintain our BUY call and fair value at RM4.12 based on SOP valuation. Meanwhile, the possible absence of a property development play capitalizing on the postal land bank may be a setback to investors.
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