KUALA LUMPUR (June 4): Shares in MMC Corp Bhd gapped up at the opening bell this morning as the stock hit limit up with a 30% jump to RM1.69, its highest level since March 2018.
The big leap in the conglomerate's share price came after yesterday’s announcement that tycoon Tan Sri Syed Mokhtar Albukhary had proposed to take the company private at RM2.94 billion via selective capital reduction (SCR) at RM2 per share.
The RM2 offer price represents a 70 sen or 53.85% premium over MMC’s last traded price of RM1.30.
At the time of writing today, 1.51 million shares were traded. At RM1.69, the group had a market capitalisation of RM5.15 billion.
In a bourse filing yesterday, MMC said Syed Mokhtar’s vehicle Seaport Terminal (Johore) Sdn Bhd (STJSB), which owns 51.76% or 1.58 billion shares in MMC, will be conducting the exercise for the 1.47 billion shares or a 48.24% stake it does not own in the company.
In total, STJSB will be spending RM2.94 billion (RM2 per share) under the SCR exercise to cancel 1.47 billion shares. MMC’s latest issued share capital stood at 3.05 billion shares worth RM2.34 billion.
The announcement confirmed The Edge’s earlier report that MMC will be privatised via an SCR exercise at RM1.80 to RM2 per share.
MIDF Research maintained its "buy" rating of MMC and raised its target price (TP) to RM2 (from RM1.40) to reflect the price target of the privatisation, and said the offer by STJSB is appealing.
It a note today, it said the proposed exercise is a great value unlocking mechanism for a counter that is persistently trading at discounted valuation.
The research house deemed that the offer price is “fair” given that the stock was trading at a discount currently despite it being lower than its asset value.
“Theoretically, based on our estimation, net operating asset per share stood at RM1.88. If we add cash and short-term investment, we arrive at a value of RM2.74 per share. Assuming a price-to-book value (P/BV) of one times, there exists a value gap of 74 sen per share which translates into additional market valuation of about RM2.25 billion,” said MIDF in a note.
Additionally, it said MMC’s book value per share (BVPS) stood at RM3.45 per share and the current offer price represents 0.58 times P/BV.
“We maintain our view that MMC is deeply undervalued. We believe that MMC is a 'no-brainer' pick for the economic recovery play. We postulate that MMC is ripe for value revision as the group has proven to be resilient amid the pandemic.
“Even relative to its historical valuation, MMC is currently trading at 10.4 times price-earnings ratio (PER), which is a discount to its five-year blended forward PER. Comparatively, one standard deviation (SD) below its mean stands at 10.1 times and the average PER is at 12.9 times. Furthermore, it is also trading at a discount in comparison to its peers, where the current average PER stands at 15.4 times,” said MIDF.
MIDF noted that the share price of MMC had never recovered from the pummeling it took back in 2017. During its heyday, the company traded above RM2, a level it has yet to reach again since. The lowest price it reached was 43 sen in March last year
The research house pointed out it is possible that limited visibility of MMC’s order book is one of the factors for the stock to be undervalued. The group’s order book visibility is only until the first quarter ending March 31, 2023 (1QFY23) upon the expiry of the Langat Sewerage Project.
“We believe that the much-anticipated MRT 3 (Mass Rapid Transit 3), which MMC-Gamuda remains a favourite for tender award wins, will be a catalyst for an upward rerating of the group. Notwithstanding this, we are pleasantly surprised that value revision comes faster than expected, albeit from a different kind of catalyst,” it added.