No Impact From Emirates’s Exit
Emirates Investment & Development PSC (Emirates), which previously held a 25% equity stake in the company, has been disposing of shares in CBS Tech since May 29, ’09. It ceased to be a substantial shareholder in the company on June 16, ’09. It was reported that slightly more than 18m shares, equivalent to almost 50% of its stake in CBS Tech, have been disposed of so far.
Emirates Investment & Development PSC (Emirates), which previously held a 25% equity stake in the company, has been disposing of shares in CBS Tech since May 29, ’09. It ceased to be a substantial shareholder in the company on June 16, ’09. It was reported that slightly more than 18m shares, equivalent to almost 50% of its stake in CBS Tech, have been disposed of so far.
COMMENTS
The Emirates-CBS alliance. To our knowledge, it was a strategic investment by Emirates to deploy CBS Tech’s RFID solutions in various applications in Middle East as the adoption of RFID technology is increasing worldwide. In turn, CBS Tech would also be able to ride on Emirates’ strong network and comprehensive portfolio of investments in education, healthcare, manufacturing, finance, telecoms, etc to deploy its RFID solutions in the Middle East and European countries. Unclear of reason for exit. We are unsure of the reason behind Emirates’ exit but we believe this could be due to the repatriation of funds back to Dubai. Emirates, which even had a board representative, started to dispose of the shares in CBS Tech before the announcement of the company’s acquisition of Infodata Media (IMSB).
No projects secured through Emirates. We understand that management was actively meeting with the investee companies of Emirates at one point to promote its RFID solutions. CBS Tech actually tied up with Emirates to bid for several projects in Middle Eastern countries in 4Q07. In September ‘07, CBS Tech also participated in one of the world’s largest ICT events, GITEX Technology Week 2007 in Dubai, with the aim of creating awareness of its products in the Middle East. The company even thought of recruiting personnel to be based in Dubai to oversee the sales and marketing activities in the region. However, after Emirates’s entry almost two years ago, the organisation has yet to help CBS Tech secure any contracts from the Middle East.
Little impact on business. Although Emirates was the biggest shareholder and also owned an
associate stake with board representation in CBS Tech, Emirates has not brought in any business for the company since its entry in 2007. The only setback is that it would be harder for CBS Tech to penetrate overseas markets in Middle East and Europe without Emirates’ network. Nevertheless, this part of the business will be compensated by the recent proposed acquisition of IMSB, which carries a profit guarantee for the next two years. As we have not factored in any contracts arising from Emirates’s network, we are therefore keeping our forward earnings estimates unchanged.
Maintain Buy. Going forward, CBS Tech will be focusing on growing its existing business and reaping the synergy from the acquisition of IMSB, which is expected to be completed by end-2009. The proposed acquisition will give CBS Tech a new dimension in the internet database-driven business such as Alibaba, which commands a much higher PER. After incorporating the profit guarantee, CBS Tech will be trading at FY10 and FY11 PERs of 6x and 5x respectively. At our fair value of RM0.70, CBS Tech will be trading at FY10 9.5x PER, not to mention that it is likely to achieve more than 100% EPS growth in FY10, backed by a RM5m profit guarantee and stronger free cash flow going forward.