Tuesday, November 23, 2010

RHB Research: Kulim may not acdept Halim Saad's offer

KUALA LUMPUR: RHB Research Institute said Kulim, which owns 57% of QSR Brands, may not accept Tan Sri Halim Saad's offer price for the entire business and undertakings of QSR at RM5.60 per share, which would translate to a total of RM1.6 billion.

The research house said on Tuesday, Nov 23 that Kulim currently owns 57% of QSR, could accept the offer without having to convene an EGM as it owns more than 50% of QSR. Thus, the ball is fully in Kulim, and ultimately, JCorp's court, whether or not they wish to accept the offer.

RHB Research 'Based on the offer price of RM5.60/QSR share, we have derived an implied valuation of KFCH shares of RM3.23, which translates to a PER of 14.4x on FY11 EPS, based on the assumption that QSR's value includes an estimated RM306m value placed on its Pizza Hut business.

'We thus believe that the offer price of RM5.60 per share undervalues both KFCH and QSR shares. Although we do not cover QSR, we believe that the offer price for QSR should at least be close to our estimated fair value of RM6.47, which is based on our fair value for KFCH of RM3.85 and the estimated RM306 million value for Pizza Hut,' it said.

'Low valuations aside, we believe that Kulim may potentially reject the offer assuming the reason for the sale is to raise cash to help pay off Johor Corp's debt of RM3.6 billion due in 2012. This is due to the fact that JCorp would only ultimately receive'' RM435 million (based on its stake in Kulim of 53.6%), assuming all the cash proceeds from the sale is paid out as dividends to QSR shareholders, which Kulim, through its 57% shareholding will receive RM811.6 million.

'This would barely make a dent on JCorp's debts and may not be a large enough incentive to accept the offer. However, our assumption is based solely on the information that is currently available. We do not discount another twist to the story which might alter our previous assumptions altogether,' it said.

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