TENAGA (5347) : Tenaga Nasional - A surprise offer announced
Target RM13.62 (Stock Rating: HOLD)
Tenaga announced its intention to undertake a conditional takeover offer for the remaining 77.9% shares that it does not own in Intergrax Bhd at RM2.75 per share, translating into a total of RM644m. We were surprised by this, as there was no prior indication that Tenaga intended to acquire Integrax. While details on the rationale for the acquisition are not available at this time, we note that the offer price represents a 20% premium over Integrax’s current valuations of 18-20x CY14 P/E. Otherwise we are neutral on the acquisition as it the earnings impact to Tenaga is minimal. Our target price for Tenaga is unchanged at RM13.62, as is our Hold call.
What Happened
Tenaga announced that it intends to undertake a conditional takeover offer for the remaining shares in Integrax that it does not own. Integrax owns and operates Lumut Port. Lekir Bulk Terminal in Lumut Port handles the unloading and delivery of coal to Tenaga’s power plants in Manjung, Perak, making Tenaga the single largest customer of Integrax. Tenaga is also currently the largest single shareholder of Integrax with 22.1%, followed by the company's deputy chairman Amin Halim Rasip with 21.4%. Tenaga’s offer will stand for 28 days from the posting of the offer document, which will occur no later than 21 days from the date of the announcement of its intentions (9 Jan 2015). Tenaga did not provide any reasons for the acquisition or the offer price.
What We Think
The offer price implies a 21.7% premium over Integrax’s 5-day volume-weighted average price (VWAP) up to 8 Jan. Integrax' share price has never traded at or above the offer price in the past 10 years. The offer price implies CY14 P/BV and P/E multiples of 1.32x and 23.5x, respectively. We think that these are on the steep side, given the premium over the average market P/E. However, we note that Integrax posted attractive net margins of 45-50% in the past five years. In terms of earnings contribution, we estimate that Tenaga's net profit would improve by 1-2% in FY08/15, assuming that the acquisition is completed in FY15.
What You Should Do
Investors should Hold Tenaga We think this announcement will not a significant impact on Tenaga's share price, as the earnings improvement from the acquisition would be minimal. Furthermore, Integrax has not responded to the announcement yet. However, we think that the acquisition will be successful, given the attractive offer price. Maintain Hold call for now.
Source: CIMB Daybreak - 12 January 2015