Acquisition of 45% Stake in KESB for RM96mn

ANNJOO has announced its entry into a share purchase agreement with Dato’ Ong Tee Thong to acquire the remaining 67,500 shares, representing a 45% stake in Konsortia Etiqa Sdn Bhd (KESB), for RM96mn. Previously, KESB was a 55%-owned indirect subsidiary of ANNJOO. Upon completion of this acquisition, KESB will become a wholly-owned subsidiary of ANNJOO, with a 96% stake held by Ann Joo Management Services Sdn Bhd and the remaining 4% by Ann Joo Steel Bhd.

KESB is an investment holding company with two subsidiaries, Perfect Channel Sdn Bhd and Perfect Wiremaker Sdn Bhd, both primarily engaged in manufacturing hard-drawn wires, galvanised steel wires, and other wire products. Additionally, KESB owns six contiguous freehold industrial land parcels, covering approximately 436.8 acres, along with buildings and facilities, including a 275kV main intake substation, located in Gurun Industrial Park, Kedah.

This acquisition is slated for completion by 1QCY25.

Our View

We are optimistic about this development, as it aligns with ANNJOO's strategy to streamline operations and enhance decision-making processes, enabling the company to capitalise on growth opportunities in the industrialisation of Northern Malaysia. This is bolstered by the influx of large-scale investments to establish new facilities in Gurun Industrial Park, particularly from leading players in the semiconductors, electrical and electronics, and automotive sectors.

The RM96mn price tag for the 45% stake values KESB at a market capitalisation of RM213.3mn, translating to a P/Bk multiple of 1.25x, based on a shareholders’ fund of RM171.2mn as of end-2023. However, this valuation is three times higher than the average P/Bk multiple of 0.47x among peer companies within our coverage. The premium valuation is likely be attributed to the land parcels owned by KESB in the Gurun Industrial Park, which had a net book value of RM245.1mn as of the end of 2023, equating to approximately RM12.88 per sq.ft.

In our view, this land is relatively undervalued, especially when compared to other industrial land, which typically falls within the price range of RM25 to RM40 per sq.ft., according to iProperty website. As a result, we believe this acquisition holds significant potential to unlock the intrinsic value of these assets. This could lead to better asset utilisation, improved profitability, and higher returns on equity, all of which align with ANNJOO’s long-term strategy of diversifying into property development and industrial property investments.

The acquisition will be funded through internally generated funds, possibly complemented by borrowings and operating cash flow. On a pro forma basis, the group’s gearing ratio is expected to improve marginally from 1.21x to 1.13x, while net assets are projected to increase from RM1.2bn to RM1.3bn. This translates to a rise in net assets per share from RM2.14 to RM2.29.

Impact

No changes to our earnings estimates.

Valuation

We maintain our Hold call on the stock with an unchanged target price of RM0.89 based on 12x CY25 earnings.

Source: TA Research - 5 Feb 2025