KUALA LUMPUR (Feb 4): KJTS Group Bhd’s (KL:KJTS) recently proposed acquisition of energy efficient cooling solutions outfit Malakoff Utilities Sdn Bhd could enhance its earnings by 18% and 33% this year and next, said CIMB Securities. 

KJTS had on Monday (Feb 3) proposed to acquire the entire equity stake in the 100%-owned subsidiary of Malakoff Corp Bhd (KL:MALAKOF) for RM65.5 million in cash.

Shares of KJTS had surged as much as 6.48% to a record high of RM1 in the morning session on Tuesday, and still traded up four sen at 98 sen per share at the time of writing, valuing the group at RM670.8 million. 

In its research note, CIMB Securities said the proposal is “attractive”, due to strong synergies expected between the companies. 

It sees the deal helping KJTS expand its cooling energy management services (CEMS) business in Malaysia significantly. 

“We raised our FY2025 and FY2026 net profit forecast estimates by 18.2% and 33.5%, respectively, to reflect the earnings contribution from Malakoff Utilities,” it said. 

“Accordingly, our target price is raised to RM1.30, still based on 22 times CY2026 price-to-earnings (PER) ratio (10% premium to the current weighted average of CY2026 PER of global peers involved in the cooling energy segment),” it added.

Meanwhile, TA Securities pointed out that Malakoff is getting a “good deal” from the transaction, with the potential to recognise a one-off gain, depending on the latest carrying value of the asset.

Furthermore, given that Malakoff Utilities historically recorded a return on equity (ROE) of just 1.9%-2.7% based on financial data from FY2021 to FY2023, analysts from TA Securities noted that Malakoff is likely to redeploy its capital into more lucrative ventures.

In a separate note, Apex Securities had assessed the disposal price as “fair”, reflecting an EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation, and amortisation) multiple of seven times based on Malakoff Utilities’ FY2023 audited numbers — marginally above the industry average of 6.1 times.

The transaction is expected to have a positive impact on Malakoff’s balance sheet, with its net gearing ratio expected to improve slightly from 1.23 times as of the third quarter of FY2024 (3QFY2024), to 1.22 times post-transaction, Apex Securities added.

KJTS’ acquisition of Malakoff Utilities is expected to be completed by the second quarter of 2025.

Hong Leong Investment Bank has been appointed as the principal adviser to KJTS for both proposals.  

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