KUALA LUMPUR: Cahya Mata Sarawak Bhd's (CMS) proposal to dispose of its stake in OM Sarawak for US$120mil is a fair deal and will unlock the value of its investment and free up working capital, says TA Securities Research.

       According to the research firm's back-of-the-envelope calculation, the cash consideration of US$120mil will translate into an acquisition price-earnings ratio of about six times FY21 earnings.

       "While the offer PER of 6.0x looks cheap, we think it was distorted by exceptionally robust earnings in FY21, thanks to the high average selling prices of steel throughout 2021.

       "Therefore, if we use our projected earnings in FY22 for OMS, the acquisition PER will translate into about 9.0x, which is in line with the sector valuation of building materials in Malaysia.

       "Overall, we believe the deal is fair, and we are largely neutral on the proposed disposal," it said.

       The research firm said the sales proceeds could be used as working capital to kickstart the operation of Phase 1 of the integrated phosphate complex in Samalaju Industrial Park, or to pare down borrowings.

       Assuming that all the proceeds are used for the repayment of debts, the group will have net cash of RM167.9mil from net debt of RM352.8mil as at 4QFY21, it said.

       However, there is also expected to be an earnings gap resulting from the disposal.

       Based on rough estimates, TA Securities said the disposal by CMS to OM Holdings Bhd will result in up to 30% FY22 earnings per share reduction in the former after taking out all the earnings contribution from OM Sarawak.

       "Therefore, we believe it will take some time for the group to fill up the earnings vacuum," said the research firm.

       TA Securities maintained its "buy" call with a target price of RM1.70 a share.