OSK fair value 1.47, but now today 1.56, apa ni???
THE BUZZ
Yesterday, Dialog announced that its 100%-owned subsidiary Dialog Systems (Asia) Pte Ltd
(DSAPL) has entered into a conditional agreement with Peter Clayton White-Robinson for the
sale and purchase of shares (SPA) to purchase 90% equity interest, or 2.4m ordinary shares,
in Fitzroy Engineering Group Limited (FEGL) for a total cash consideration of NZD13.5
(RM31.7m).
OUR TAKE
Background of FEGL. The company is incorporated in New Zealand and is one of the
country’s largest heavy fabrication and multi-disciplined engineering companies. Its customers
are mainly multinational companies from New Zealand and Australia. FEGL has intellectual
property rights to welding procedures and 400 workers under its stable. It also owns a large
fabrication yard facility situated on 4 hectares of leased land.
Rationale for the purchase. This allows Dialog to strengthen and enhance its fabrication
business in the O&G and petrochemical industries. This would also enable it to penetrate into
the New Zealand and Australian markets.
Mode of financing. Dialog expects to finance the acquisition through a mix of bank
borrowings and internally generated funds. Based on its 1QFY11 announcement, Dialog has
net cash of RM191m. The SPA is expected to be completed by the end of 1QCY11.
Maintain Neutral. We understand that FEGL has been generating an average net profit of
about NZD3m (RM7m) over the past 3 years. This amount is of course immaterial compared
to our net profit forecast for Dialog of about RM139m and RM149m for FY11 and FY12
respectively. Given that the earnings contribution for Dialog’s FY11 is immaterial as
announced, we are keeping our FY11-12 earnings unchanged for now. Our target price for
the stock remains unchanged at RM1.47 based on a sum-of-parts valuation.
