| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Strategic Expansion into High-Value Sectors
Southern Score Builders (SSB) is making a strategic foray into the high-growth pharmaceutical and biotechnology engineering sectors through a significant acquisition. The company proposed to acquire a 33% stake in Nova Pharma Solutions (NPS) for an all-cash consideration of RM18.2 million. NPS specializes in providing engineering solutions for the pharmaceutical and biotechnology industries.
This transaction will trigger a mandatory takeover (MTO) offer for the remaining shares of NPS at RM0.37 per share, although SSB has indicated no intention to maintain NPS’s listing status. The acquisition is viewed favorably, as NPS recorded revenue of RM12.6 million and a net profit of RM5.1 million in FY24. The deal values NPS at an implied 11x FY24 PER, which is considered attractive relative to SSB’s forward FY26E PER of 17x. Furthermore, the acquisition is backed by a RM15 million profit guarantee spanning FY26-28E.
Earnings Accretive and Capability Enhanced
The investment bank views this acquisition as highly positive for several reasons. Firstly, it strategically positions SSB to capture higher-value projects within the pharmaceutical and biotechnology domains. Secondly, the integration of NPS is expected to enhance SSB’s group net profit margins, thereby improving overall profitability. Lastly, it will bolster SSB’s existing turnkey capabilities, enabling stronger project execution and increasing the likelihood of securing new contracts.
Financially, the proposed 33% stake is projected to be earnings accretive, potentially lifting SSB’s profit after tax and minority interest (PATAMI) by an estimated 5-6% across FY26-28E. SSB plans to fund this acquisition through internally generated funds, ensuring its balance sheet remains robust with a manageable net gearing of 0.15x.
Outlook and Investment Recommendation
The investment bank maintains its BUY recommendation for the company, with a target price of RM0.25. This target price represents a potential upside of 25.0% from the last traded price of RM0.20. This rating remains unchanged pending the successful completion of the acquisition.
The firm continues to favor SSB due to its strategic expansion into the fast-growing data center (DC) sector, complemented by strong order book visibility from existing anchor clients, including PV and Radium. However, key risks to the investment call include unforeseen changes in government policies and fluctuations in raw material prices.
