PETALING JAYA: Despite some quarters valuing Boustead Properties Bhd at RM8 per share, analysts remain generally positive on Boustead Holdings Bhd's offer on Thursday of RM5.50 per share to buy out the 65%-owned subsidiary.
HLG Securities research manager Ridzuan Mohamed told StarBiz the offer price was “fairly generous on prospective valuations”.
The offer of RM5.50 gives a price-earnings ratio (PE) of about 15 times to prospective financial year ending Dec 31, 2008 earnings and a free cash flow yield of 5%.
“These numbers are on the high side relative to the property sector, as mid-cap property developers are trading at PEs of below 10 times and real estate investment trusts (REITs) have 7%-plus dividend yield, so the offer is fairly generous on prospective valuations,” he said.
HLG Securities, which has had a “buy” call on Boustead Prop since April 25, maintains its fair value of RM4.80 on the company.
The research house's fair value is based on the market value of Boustead Prop's Al-Hadharah REIT stake, plus discounted cash flow valuation on its property business.
“Having said that, there could be a lot of future value accretion from its investment properties, especially The Curve/Cineleisure Damansara.
“Combined, these two malls have an effective net lettable area of 780,000 sq ft, and assuming these are worth RM1,100 per sq ft as per broker fair value on IGB's Mid Valley Megamall, you will get an incremental RM2.50-RM3 above our RM4.80 price target.
“But that's a big 'if', because these malls are not big income earners yet,” he added.
Ridzuan pointed out that in 2007, total property investment earnings before interest depreciation and amortisation was at just 10 sen per share.
He estimates that it would take about three years for The Curve/Cineleisure to reach its full valuation potential.
“It's not going to be immediate,” he said.
MIMB Investment Bank head of equity research Pong Teng Siew is also in favour of the deal.
He said since the Boustead group raised its stake in UAC Bhd to 65.2% from 38.5% last May, there appeared to be a trend for the group to increase its stake in its associates and subsidiaries and make acquisitions.
The market had been quite receptive to this and the group had generally been able to generate synergies and value from the deals, he said.
Pong believes Boustead would be a good buy at the current price as the company paid “fairly good dividends and on and off there is trading interest.”
“It's not a great stock for immediate capital gain but can be held for the long term,” he said, adding that the property sector looked undervalued currently and the acquisition of Boustead Prop shares should give the group some future upside.
By The Star (by Loong Tse Min)
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