KUALA LUMPUR: DKSH Holdings (M) Bhd’s proposed acquisition plan of the entire stake in Auric Pacific Sdn Bhd for RM480.9 million is a positive move.
Public Investment Bank Bhd (PublicInvest) said while the acquisition cost appeared to be expensive at 18 times price earnings ratio, it was justified by Auric’s relatively high profit margins of circa seven per cent compared to DKSH’s one to two per cent.
Auric is involved in the distribution of chilled and frozen products and food services channel in Malaysia.
“We are positive on the acquisition due to potential synergies to be created through extension of client portfolio base, cross selling and expansion of house brands product range.
“The proposed acquisition will enable DKSH to increase its market share in the market expansion services industry in Malaysia and provide opportunity to grow its position in the fast-moving consumer good (FMCG) segment,” it said in a research note today.
PublicInvest said should the acquisition be fully funded by bank borrowings, the overall impact on DKSH’s bottomline is likely to be neutral to slightly negative in the immediate term due to higher interest expense while synergies may only be created in the medium to long term.
It said however, funding should not be an issue given its low gearing.
“Assuming acquisition is fully funded by borrowings, its net gearing is expected to go up to 0.9 times,” it said.
On a separate note, PublicInvest said it did not expect DKSH to be reinstated to Shariah-compliant list in the near future, as the proportion of prohibited business activities has increased and breached the allowable threshold.
DKSH was recently excluded from the Shariah-compliant list, which has resulted in a heavy sell-down on its shares.
PublicInvest upgraded DKSH to “outperform” with a lower target price of RM3 from RM3.40 previously.