NWS announced on 21 Aug after trading hours to sell Citybus and New World First Bus (NWFB) for a total amount of HK$3,200mn. The Group’s bus business turned from profit to loss in FY19, and we expect it to keep making loss in FY20E-22E. We see disposal of this non-core, loss-making business as another positive move to optimise the Group’s business portfolio. This deal is positive to earnings, NAV and net gearing, in our view. Maintain BUY, raise TP to HK$12.90.
- Disposing bus business for a total of HK$3,200mn. NWS will sell NWS Transport Services Ltd, whose principal subsidiaries include Citybus and NWFB, to Templewater Bravo Holdings Ltd, a JV formed by Templewater Bravo Holdings Ltd, Hans Energy (554 HK) and Ascendal Group Ltd, holding 90.8%, 8.6% and 0.6% respectively. The consideration for the disposal is HK$3,200m payable in cash, of which HK$2,490mn payable at completion of the transaction, and the remaining HK$710mn payable by three instalments on the third, fifth and sixth anniversary of the completion date, conditional upon the fulfilment of certain medium-term business milestones of the franchised bus business.
- Streamlined business portfolio to focus on sustainable growth. With the disposal of bus after selling 60% stake in New World First Ferry in May 2020, NWS has almost exited the entire transport business (with a remaining market value of ~HK$155mn in Ferry). This is in line with the Group’s focus on sustainable growth in core businesses in Roads, Construction, Aviation and Insurance.
- Cutting loss for FY21E-22E. Citybus & NWFB recorded a combined net loss of HK$48mn in FY19, and we estimate that they will record combined losses of HK$69mn / HK$42mn in FY21E / FY22E. The disposal, therefore, is expected to lift the Group’s profits to shareholders by ~1%.
- Impairment loss of HK$0.7bn in FY20. NWS has recognised an impairment loss of approximately HK$0.7bn in the Group’s consolidated financial statements FY20 (YE Jun), in expectation of this disposal. While this would worsen the reported earnings drop in FY20E, it has no negative impact on cashflows and there would be no more material impairment loss in FY21E.
