Sunday, September 12, 2010

Plenitude (OSK Research) maintain buy; target price RM4.84

A Bonus Surprise

On 7 Sept 2010, Plenitude proposed a 1-for-1 bonus issue (Bursa).

Announces 1-for-1 bonus issue. We had always wondered what Plenitude would do with the large reserves that the company has been building up since its listing in 2003.Given the illiquidity of the stock, we had always suspected that the management would eventually carry out a bonus issue. However, since the management had vehemently indicated in the past that it had no interest in embarking on such a corporate exercise to improve the stock’s liquidity, its proposed 1-for-1 bonus issue certainly took us by surprise. The 1-for-1 bonus issue will involve an issuance of up to 135m shares to be issued at a date to be announced later.No changes to earnings estimates, of course. The bonus issue exercise will of course have no impact on our earnings forecast. But accordingly, ex-bonus, our EPS and NTA/share will be reduced by 50% (FY11: from 72.4 sen and RM5.94 to 36.2 sen and RM2.97 respectively). Consequently, our fair value, which is based on 0.8x CY11 P/NTA, will be adjusted from RM4.84 to RM2.42. A timely move. Maintain BUY. Note that we upgraded Plenitude’s fair value to RM4.84 (cum) in our 3 Sept 2010 property sector report, ‘A Brewing Real Estate Mania’ on thepremise that Plenitude stands to gain from the coming property upcycle, which will be primarily led by the mid-to-high end landed properties. With no changes to our outlook on the fundamentals of the stock for now, we continue to value Plenitude at RM4.84 (cum) based on 0.8x CY11 P/NTA, which is approximately 2.5σ above its 7-year historical mean. Coupled with the anticipated brighter sector outlook in the horizon, the substantially improved liquidity in the stock would soon capture the attention of institutional investors, and potentially provide a shot-in-the-arm to Plenitude’s valuation. As this is also the first time that Plenitude actually appears to be proactive in addressing the issue of the stock’s liquidity since its listing in 2003, we see the possibility of Plenitude trading at a premium even to its historical valuation soon. Maintain BUY.

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