KUALA LUMPUR: Rakuten Trade, which has a “buy” call on Straits Inter Logistics Bhd , has upgraded its target price to 38 sen following its latest development.
“Straits’ proposed acquisition of 55% in Tumpuan Megah Development Sdn Bhd (TMD) would transform them into one of the largest oil bunkering players in Malaysia,” the research house said.
Straits currently operates two vessels for its oil bunkering business in the ports of Pasir Gudang, Johor and Labuan.
The proposed acquisition of a 55% stake in TMD for RM35.75mil which is also a marine gas oil bunkering operator comes with profit guarantee of RM10mil over two years.
It will also enchance its coverage to eight ports throughout Malaysia with a total of nine vessels.
“The enlarged customer base will provide economies of scale for Straits to solidity their position as one the largest marine oil gas bunkering and oil trading in Malaysia,” it said.
Rakuten said the minimum profit guarantee based on their proposed 55% stake amounts to RM2.75mil PAT for Straits FY19 and FY20 and valuing their acquisition of TMD at 13 times PER against their current FY17 PER of 25.4 times.
“With the current recovery of oil price, the O&G sector is expected to see increased activities which will bode well for Straits. Earnings is projected to more than double in FY19 as TMD acquisition is expected to be completed by end-2018,” Rakuten said.