Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on July 11, 2018

Atlan Holdings Bhd
(July 10, RM4.50)
Maintain buy with an unchanged target price of RM6.60:
We are positive on Atlan Holdings Bhd’s 75%-owned unit Duty Free International Ltd’s (DFIL) proposed acquisition of a 70% subsidiary which we believe will benefit Atlan’s duty-free business in the long run.

 

DFIL has entered into a conditional subscription agreement with Robert Justin Frizelle, Meridian Compass Ltd and Brand Connect Holding Pte Ltd to subscribe to 2.8 million new ordinary shares in Brand Connect for US$2.8 million (RM11.23 million). Consequently, post-internal restructuring exercise of the Brand Connect group of companies (collectively known as the target group), Brand Connect will become a 70% subsidiary of DFIL, with a 52% effective stake held by Atlan. The target group, with a net asset value of US$1.4 million, is primarily engaged in the business of marketing and distribution of alcohol and other beverage products across the Asia-Pacific region. We understand that DFIL’s rationale for the acquisition is to develop and grow its alcohol distribution business, and expand its market operations beyond Malaysia and across the Southeast Asia region.

We think the acquisition would be positive for Atlan’s duty-free business in the long term given the target group’s primary business of marketing and distributing alcoholic products. We believe some of the possible benefits for DFIL include an improvement in operational efficiency, better cost management and a wider distribution network. For financial year 2018 (FY18), the duty-free business contributed about 90% of Atlan’s pre-tax profit. However, we maintain our earnings forecasts at this juncture pending further disclosures by Atlan.

We remain positive on Atlan’s resilient earnings from the duty-free business and its undervalued land-based assets in Jalan Ampang and in Bukit Kayu Hitam. Atlan’s balance sheet was also healthy with an end-FY18 net cash of RM340.5 million (RM1.34 per share). — Maybank IB Research, July 10

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