KUALA LUMPUR (May 10): Kenanga Research has maintained its “market perform” rating on SCGM Bhd at RM2.38, but with a higher target price (TP) of RM2.53, from RM2.34 previously, after the food packaging manufacturer announced its intention to divest its entire core business for RM544.4 million or RM2.83 per share, to be followed by a proposed distribution of RM425.5 million or RM2.21 per share to its shareholders.
In a note on Tuesday (May 10), the research house said the disposal consideration (using enterprise value methodology) is above the house’s initial target market capitalisation of RM450.7 million, which is derived from its previous TP of RM2.34 based on PER of 13 times.
Kenanga Research said the purpose of the disposal is to enable SCGM to unlock the value of its investment in Lee Soon Seng Plastic Industries Sdn Bhd and reward the existing shareholders for their support of the group.
It said post-divestment, SCGM — which is expected to be classified as a cash company — intends to maintain its listing status while looking to acquire new business/assets.
“We are keeping our earnings forecasts for now pending the completion of the deal.
“Given the selling premium, which offers a timely exit opportunity for its shareholders, the deal will likely go through," it added.