Positive views on BAuto management buyout

PETALING JAYA: Analysts view Berjaya Corp Bhd’s (BCorp) proposed disposal of its stake in Berjaya Auto Bhd (BAuto) to the latter’s management as a positive move, which will clear the overhang in the market regarding the paring down of Berjaya Group Bhd’s (BGroup) stake in BAuto.
Through BGroup, BCorp holds a 22% stake in BAuto.
In a note yesterday, MIDF Research said the exercise would remove a big overhang in the market since BGroup has been crystalising their investment in BAuto since listing given cash requirements for its other investments and to pare down borrowings.
“BAuto has always been driven by its current management, which were also the key people behind the turnaround of Hyundai in Malaysia (back then owned by Berjaya) before Berjaya sold it off to Sime Darby at huge profits,” its analyst Syed Muhammed Kifni said.
“All in, we see this as a positive move. More importantly, fundamentals remain intact,” he added.
On Tuesday, BCorp announced that its unit BGroup had entered into an agreement with BAuto management on the proposed disposal-cum-injection of up to an aggregate of 31.88% stake in BAuto into a special purpose vehicle (SPV) for RM766.75 million or at RM2.10 per BAuto share.
Syed Muhammed said the SPV would act as a vehicle for BAuto management to do a leveraged buyout of BCorp’s 17% stake in BAuto, with the remaining 5% being exchanged for shares in the SPV.
Under the agreement, the “management party” led by BAuto CEO Datuk Seri Ben Yeoh Choon San, will inject 10% BAuto shares in the SPV while BGroup will inject its 22% stake in BAuto.
“Essentially, it is a management buyout and we view this positively as it would dilute BGroup’s interest in BAuto and also suggest higher dividend payout by BAuto in the future,” Public Invest Research said in a separate note.
Its analyst Nur Farah Syifaa’ Mohamad Fu’ad said the research house expects BAuto to distribute a higher dividend payout to its shareholders to help the SPV to repay the debt, which amounts to some RM406 million.
“Currently, we assume a 40% payout ratio for FY16F and FY17F, which translates to a dividend per share of 7.1 sen and 7.9 sen for the respective years or a decent dividend yield of about 3.5%,” she added.
PublicInvest Research maintains its “outperform” call on BAuto’s stock at a target price of RM2.58 pegged to 13 times FY17F, as it likes the group’s asset light business model, sustainable profit margin and attractive dividend payout.
Meanwhile, MIDF Research is maintaining its “buy” call on BAuto at an unchanged target price of RM2.50 per share.
BAuto’s shares closed higher 4.21% or 9 sen at RM2.23 yesterday, with some 3.4 million shares traded.
BCorp ended higher 1.28% or half a sen at 39.5 sen yesterday, with some 6.47 million shares changing hands.