LBS Bina's earnings could rise moderately from 2Q16, says analyst

KUALA LUMPUR (April 12): LBS Bina Group Bhd's share acquisition of ML Global Bhd could see its earnings increase moderately by 5% to 6% beginning from the second or third quarter of financial year 2016 with the full consolidation of the latter's account, according to a research report.

"This is based on LBS Bina's 51% stake in ML Global and the company's profit after tax of RM10 million each for 2016F and 2017F. We maintain 'buy' on LBS Bina with an unchanged target price of RM1.70," said JF Apex Research in a note.

At 10.56am, LBS Bina's share price dipped 0.62% to RM1.59 with 133,400 shares done for a market capitalisation of RM877.08 million.

At the same time, ML Global rose half a sen or 0.84% to 60 sen with 468,900 shares transacted for a market capitalisation of RM52.88 million.

Analysts are mixed on LBS Bina following news of its share acquisition and mandatory takeover offer (MTO) of ML Global, which was triggered after its stake rose to 50.92% yesterday.

"LBS Bina emerged as a substantial shareholder of ML Global following the company's placement exercise as part of its regularisation plan to exit from PN17. The regularisation plan was completed in October 2014 and subsequently upliftment of ML Global's PN17 status took effect in March this year," JF Apex said.

It pointed out that LBS Bina's net gearing might inch up marginally as the total purchase consideration could cost the group RM35.2 million inclusive of RM9.5 million from the acquisition of the 18.97% stake from ML Global's major shareholder and managing director Datuk Beh Hang Kong.

"Assuming fully funded by bank borrowing, LBS Bina's net gearing could increase to 0.37 times from (the) current 0.32 times after consolidating ML Global's total debt of RM17m," it said.

Meanwhile, CIMB IB Bhd said in a note that LBS Bina's offer prices value for ML Global is at a "deep discount" to the average price to earnings of 15 to 16 times for the construction sector.

"However, it is uncertain whether the minority shareholders will accept LBS Bina's offer as it prices the ordinary shares and warrants at 6% and 82% discounts to their respective market prices.

"Assuming ML Global repeats its 2015 earnings performance in 2016 to 2018 and none of the minority shareholders accept LBS Bina's offers, we estimate the acquisition of shares from Beh will enhance LBS Bina's FY16 to FY18 earnings per share by circa 1%.

"If all the minority shareholders accept the offers, the exercise could enhance LBS Bina's FY16 to FY18 EPS (earnings per share) by 4%," CIMB said, adding that it was keeping its earnings forecasts intact as the take-up rates for the offers were unknown at this juncture.

It maintained an "add" call at a target price of RM1.85. – theedgemarkets.com

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