KUALA LUMPUR: PublicInvest Research is optimistic over Wegmans Holdings Bhd's acquisition of equity in Wison Screw Industries as it provide better synergies and generate a new earnings stream.

"Based on our estimate, Wegmans could see an earnings uplift of 9-20% in FY21-22F while EPS is expected to only increase by 3-9%, given the dilution effect from new share issuance," it said in a note, while maintaining its "outperform" recommendation.

PublicInvest's target price is left unchanged at 46 sen based on 15x FY21 forecast earnings per share pending further approval on the acquisition, but will be adjusted correspondingly to 50 sen.

Wegmans had entered into a share sale agreement with BSV and Kek Wee Beng (the Vendors) to acquire a 90% stake in WSI for a total of RM16.2mil.

The total purchase consideration will be fully satisfied via issuance and allotment of 50m new Wegmans shares at an issue price of 32.38 sen per share.

"The acquisition is pricing WSI at a 6x PER based on its FY20 profit guarantee of RM3mil, which we think is attractive, considering the average forward PER of 10x for furniture companies under our coverage," said the research house.

The proposed acquisition is expected to be completed by 2Q of 2021.

"Meanwhile, given that the proposed acquisition will be satisfied via share issuance, it is unlikely to constrain Wegmans’ cash flow, enabling Wegmans to conserve cash for future working capital and expansion purposes," said PublicInvest.