KUALA LUMPUR: Hong Leong Industries Bhd (HLI) has extended its losses on morning trades today, falling 32 sen or 7.10% to settle at RM4.19 at 12.30 pm.
As at 2.40 pm, the counter remains at RM4.19, with some 1.14 million shares traded, making it the top loser.
It was also the top loser at yesterday’s close, when it shed RM1.92 or 29.86% to its 15-month low of RM4.51, on notice that its shares will be traded and quoted to reflect the distribution of 345 million new Narra Industries Bhd shares to its [HLI] shareholders.
Under the capital distribution, entitled shareholders of HLI will get 1.08 Narra shares for every 1 HLI share held as at 5 pm on Oct 16 (tomorrow).
HLI said the capital distribution shall be implemented by way of share premium reserve reduction by approximately RM234.1 million, and capital repayment.
The corporate exercise is due to HLI’s disposal of Hume Concrete Sdn Bhd (formerly known as Hume Industries (Malaysia) Sdn Bhd) and the entire irredeemable convertible preference shares (ICPS) in Hume Cement Sdn Bhd to Narra.
In a note yesterday, UOB KayHian Research said it expects HLI’s earnings to be sustainable – or stronger – in FY15-FY16 after stripping out Hume Cement’s ICPS and Hume Concrete.
The research house said the ex-target price of RM4.56 is from a 20% holding company discount to its sum-of-the-parts (SOTP) valuation of RM5.70 per share.
UOB KayHian added that while there is no formal dividend policy, management guided that HLI will continue paying out at least 50-55% of its earnings, which could translate to a yield of 4-5% in FY15-17 assuming a payout ratio of 50% and theoretical ex-price of RM6.43 (adjustment based on Narra's par value).
“With HLI supported by a dividend yield of 4-5% and clean balance sheet, we deem our target price to be conservative. A 12x 2014F price to earnings on the motorbike division would value HLI’s SOTP at RM6.40 and ex-target price at RM5.10,” the research house noted.
For the full year ended June 30, 2014 (FY14), HLI reported a 13.6% increase in net profit to RM168 million, from RM148 million in FY13. Revenue rose marginally to RM2.28 billion from RM2.26 billion.