Kumpulan Peransang Selangor Bhd’s (KPS) proposed divestment of 50% stake in bedding product maker Kaiserkorp Corporation Sdn Bhd (Kaiserkorp) for RM265.5 million cash is earning dilutive, unless the proceeds is reinvested in businesses with high returns, according to Kenanga Research.
In this Company Update today (Jan 10), KPS will realise RM117.4 million gains from the disposal, translating to 21.8 sen per share, which it has earmarked RM24.2 million for a special dividend, translating to 4.5 sen per share.
“The exercise will boost KPS’ net cash of RM20 million as at end-3QFY23 to RM194.5 million, after reflecting the deconsolidation of RM65.9 million cash sitting in Kaiserkorp, related disposal expenses, and the special dividend payout.
“Unless KPS reinvests the cash proceeds in businesses with high returns, the exercise erodes our FY24F net profit forecast by 21% as the
loss of net profit contribution to the tune of RM12 million per annum from Kaiserkorp is only partially cushioned by RM5.2 million net interest income from the additional cash.
“For this reason, we are at best only neutral on the deal,” it said.
Consequently, Kenanga cuts its FY24F earnings forecast by 21%, reduces our TP by 12% to RM0.45 from RM0.51 and maintains its
UNDERPERFORM call.
“(However), we keep our FY23F net profit forecast. (The TP is) based on 10x revised FY24F EPS of 4.0 sen (in line with the average forward
PER of the manufacturing sector) plus the 4.5 sen special dividend.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us,” it said.
The research house said the group’s divestment of its stake to AI Dream (HK) Ltd for RM265.5 million cash will reduced its stake in Kaiserkorp to 10% from 60%.
“The deal values the asset at 22x FY23F PER, which is at a 10% premium to the average forward PER of the comparable international companies of 20x (Leggett & Platt, Incorporate and Tempur Sealy International, Inc),” it said.
It added the disposal is expected to be completed by March 2024.
“We like KPS for the strong growth prospects of the consumer electronics industry, its long-term growth underpinned by expansion at its overseas operations, and the greater role it is playing in the supply chain of a renowned privately-owned innovator of high-tech consumer electronic appliances.
“However, over the immediate term, it will not be spared the significant slowdown in the global consumer electronics industry, and it is
also struggling to contain the rising cost,” it said.
The risks to Kenanga’s call is stronger-than-expected recovery in the consumer electronics sector, easing of input costs, and consistent
renewal of contracts by key clients.
