Neptune Orient Lines Limited (“NOL”) announced yesterday that it had entered into a sale and purchase agreement with Kintetsu World Express for APL Logistics (APLL) for ~US$1.2b. Based on FY14 results, the purchase values APLL at ~5.0x P/B, ~16.4x P/E, and ~15.0x EV/EBITDA. Compared to precedent logistics M&A transactions, IPO and peers valuations based on EV/EBITDA multiple of between 9.6x and 11.4x, we think the purchase price is more favourable for NOL. Divestment is expected to complete by mid-2015. Although the divestment will result in strengthened balance sheet, NOL will fully depend on liner business which we expect depressed yields to continue in FY15. Should the proposed divestment go through, based on a higher FY15F NBV, and 0.80x P/B (-0.75SD below 7-year mean) which we discount for higher risk on slower recovery without APLL, we derive a FV of S$1.15. However, given that the divestment is still pending approval, we incorporate the post-divestment FV with our current FV of S$0.92 (without divestment of APLL) on a blended basis. Consequently, our FV increases from S$0.92 to S$1.01. Upgrade to HOLD.
Proposed divestment price favourable for NOL
Neptune Orient Lines Limited (“NOL”) announced yesterday that it had entered into a sale and purchase agreement with Kintetsu World Express (KWE) for APL Logistics (APLL) for ~US$1.2b. Based on FY14 results, the purchase values APLL at ~5.0x P/B, ~16.4x P/E, and ~15.0x EV/EBITDA. Compared to precedent logistics M&A transactions, IPO and peers valuations based on EV/EBITDA multiple of between 9.6x and 11.4x, we think the purchase price is more favourable for NOL. The divestment came as a surprise to us as management played down the possible sale only last Friday.
Impact on NOL if divestment goes through
If the proposed divestment is approved by shareholders and regulators, we should see the following impact on NOL assuming the transaction completes in 3Q15: 1) one-off pre-tax gain of US$900m in FY15F from the divestment, 2) no impact on cash balance in FY15F as we assume the full US$1.2b cash will be used to repay debts, 3) debts to reduce by US$1.2b from 3Q15 resulting in an estimated US$30.0m annual saving in interest expenses, 4) this will boost FY15F NBV from ~US$1.7b to ~US$2.8b while net gearing declines from 2.32 to 1.02, 5) loss of ~US$55.0m annual PATMI as APLL’s contribution to cease from 3Q15, 6) net negative impact of ~US$25.0m annually on NOL’s P&L. That said, we think the strengthened balance allows NOL to be better poised to for recovery as it is able to direct focus and resources to manage the liner business. However, note that APLL makes up ~19% of total revenue and has been the sole positive contributor to NOL’s bottom-line over the last three years. We also expect depressed yields to continue although lifted partially by lower bunker price in the near-term. Hence, should the proposed divestment go through, based on a higher FY15F NBV, and 0.80x P/B (-0.75SD below 7-year mean), discounted for slower recovery without APLL, we derive a FV of S$1.15.
Increase FV; upgrade to HOLD
However, given that the divestment is still pending approval, we incorporate the post-divestment FV with our current FV of S$0.92 (i.e. without divestment of APLL) on a blended basis. Consequently, our FV increases from S$0.92 to S$1.01. Upgrade to HOLD.
Neptune Orient Lines Limited (“NOL”) announced yesterday that it had entered into a sale and purchase agreement with Kintetsu World Express (KWE) for APL Logistics (APLL) for ~US$1.2b. Based on FY14 results, the purchase values APLL at ~5.0x P/B, ~16.4x P/E, and ~15.0x EV/EBITDA. Compared to precedent logistics M&A transactions, IPO and peers valuations based on EV/EBITDA multiple of between 9.6x and 11.4x, we think the purchase price is more favourable for NOL. The divestment came as a surprise to us as management played down the possible sale only last Friday.
Impact on NOL if divestment goes through
If the proposed divestment is approved by shareholders and regulators, we should see the following impact on NOL assuming the transaction completes in 3Q15: 1) one-off pre-tax gain of US$900m in FY15F from the divestment, 2) no impact on cash balance in FY15F as we assume the full US$1.2b cash will be used to repay debts, 3) debts to reduce by US$1.2b from 3Q15 resulting in an estimated US$30.0m annual saving in interest expenses, 4) this will boost FY15F NBV from ~US$1.7b to ~US$2.8b while net gearing declines from 2.32 to 1.02, 5) loss of ~US$55.0m annual PATMI as APLL’s contribution to cease from 3Q15, 6) net negative impact of ~US$25.0m annually on NOL’s P&L. That said, we think the strengthened balance allows NOL to be better poised to for recovery as it is able to direct focus and resources to manage the liner business. However, note that APLL makes up ~19% of total revenue and has been the sole positive contributor to NOL’s bottom-line over the last three years. We also expect depressed yields to continue although lifted partially by lower bunker price in the near-term. Hence, should the proposed divestment go through, based on a higher FY15F NBV, and 0.80x P/B (-0.75SD below 7-year mean), discounted for slower recovery without APLL, we derive a FV of S$1.15.
Increase FV; upgrade to HOLD
However, given that the divestment is still pending approval, we incorporate the post-divestment FV with our current FV of S$0.92 (i.e. without divestment of APLL) on a blended basis. Consequently, our FV increases from S$0.92 to S$1.01. Upgrade to HOLD.
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