We attended ACST’s analyst meeting yesterday to receive the latest updates, especially regarding its acquisition by UNTR. The main takeaway from the meeting is that the transaction will be done in two stages. In the first stage a 40% shareholding in the company will be acquired from the current majority shareholders (Cross Plus Indonesia and Loka Cipta Kreasi) by year-end and in the second stage a 10.1% tender offer will be undertaken starting in 2015. We have a positive view on ACST but would advise investors to wait until the transaction is completed before entering the stock. All in all, we believe that ACST stands to benefit as Astra’s construction arm.
Share price overhang to linger until at least 1Q15
Since UNTR announced plans to become the majority shareholder in ACST with a 50.1% shareholding, ACST’s share price has underperformed. ACST’s management indicated that the acquisition of a 40% stake held by the current majority shareholders (Cross Plus Indonesia and Loka Cipta Kreasi) would be done by year-end. After that, a tender offer opening at the beginning of 2015 would be undertaken to acquire a further 10.1% shareholding. The floor price is set at Rp2,887 based on the last 90 days average price before the acquisition announcement on 16 October 2014. Assuming at current share price transaction, UNTR would pay a 17% premium to the floor price. If UNTR cannot get the shares from the market due to a lack of liquidity, they will buy them from either Cross Plus Indonesia or Loka Cipta Kreasi. If the transaction materializes, ACST’s free float will decline to 21% from 31% currently – possibly more pressure in liquidity issue.
ACST’s outlook remains promising
During the meeting, the management also emphasized that this year’s targets should be achievable considering the huge backlog of projects. However, for FY15F, the management has not provided any guidance yet considering UNTR’s planned acquisition. They also stressed that ACST’s business model would still be the same post-acquisition, meaning that the foundations structure business would remain its main focus. In our view, even without any affiliated projects from the Astra Group, ACST already enjoys a strong reputation which will help drive its order book going forward. Astra’s strategy of enhancing property and infrastructure projects should help ACST to become the main contractor for some Astra-related projects, we believe.
Wait for a better entry point
Utilizing the management’s guidance for 2015F (21% EPS CAGR FY13-FY15F), ACST’s shares currently trade at FY15F PE of 11.5x, or a 47% discount to its closest peer TOTL. In our view, even though the shares are attractive at the current level, we would still advise investors to wait until the transaction is completed before entering the stock. We believe that post-acquisition, ACST’s discount to TOTL should narrow, with the company therefore enjoying a re-rating supported by the favorable outlook for its construction business as well as potential Astra-related projects.