Monday, 25 March 2019

Acquisition of KIANJOO by CANONE, a classic case of little fish eating big fish

There was a sense of Deja Vu when CANONE launched an offer to acquire KIANJOO. But in this round, which is about 10 years later, the little fish has almost swallowed the big fish. At the time of writing, it has gained control over more than 80% of KIANJOO shares.

23 Feb 2009 was a watershed moment of CANONE group. The conditional offer made by CANONE to acquire 146,131,500 or 32.9% stake in KIANJOO for RM241.1m, or RM1.65 per KIANJOO share (higher than market price), was accepted!

The news caught market’s attention as it was a case of a small fish eating a bigger fish. When the announcement was made, KIANJOO, at RM1.30/share had a market cap of RM577.4m. Even the acquisition amount of RM241.1m to acquire 32.9% stake KIANJOO was already much greater than CANONE’s market cap of RM130.3m at that point of time.

What actually impressed me more is the ability of CANONE swallowing the bigger fish WITHOUT RAISING A SINGLE CENT from the shareholders, NOR ISSUANCE OF ANY NEW SHARES.

Based on the circular, the performa effect of the 32.9% acquisition would raise CANONE’s net gearing from 1.23x to 2.85x. Dragged by legal actions by the See family, the acquisition was only completed on 25 January 2012. Fast forward, CANONE’s net gearing was brought down significantly to a mere 0.52x as at end-2018. This is despite the fact that CANONE has been paying annual dividend of 3sen/share to 5sen/share since 2009.

How did CANONE achieve it, without raising a single cent from the shareholders' not issuance of any new shares?

CANONE subscribed for 80% stake in F&B Nutrition Sdn Bhd, which manufactures dairy and non-dairy products, for RM8m in Nov 2006 for RM8m. Since then, the top line and bottom line of the F&B sunsidiary have been growing by leaps and bounds, as shown below.


However, the exceptional earnings growth of the F&B division has been masked by less inspiring performance of its can division and contribution from its associate. 



At CANONE's current market cap of RM571m, you get i) a fast growing F&B business; ii) CANONE's can business; as well as iii) more than 80% of KIANJOO, which is the largest packaging company in ASEAN.

Going forward, CANONE's bottom line is expected to be burdened by heavy financing costs, arising from the takeover of KIANJOO. However, as long as the cashflow from KIANJOO is sufficient to service the financing for the acquisition of KIANJOO's shares, I think CANONE is undervalued. 

There is value to be extracted from the F&B business of CANONE. One way is to list its F&B business, or to dispose it at a decent premium. Back in April 2016, KWAP was in final stages of completing an acquisition of a 30% stake in CANONE's F&B business, for RM280m (source). This valued the F&B business at RM933m back then. At that time, CANONE embarked on a sale of its F&B division, seeking a valuation of up to 20x earnings.

P/s: An interesting write-up about Yeoh Jin Hoe's ALCOM coup



Tuesday, 15 January 2019

Prinsiptek Undertaking a RM2.1b Job?

Prinsiptek has entered into a JV agreement to build port, jetty, bulking storage tank, housing, oil palm mill and oil palm refinery for a consideration of RM2.13bn (Company announcement). Prinsiptek is a listed company with a market cap of RM38.4m. 

It raises the following doubts:

1. Who is the client?
2. Has the project been awarded to the JV? 
3. Why would the client award a RM2b job to a JV which will delegate the construction job to a small construction company?
4. Isn't non-payment risk by client too big for Prinsiptek to take? 
5. Does Prinsiptek have the technical capacity to build these facilities?
6. Would banks finance the working capital for the project?

It reminds me of Linear Corporation Berhad which secured a RM1.6b project in 2009. There were CG issues and the company was delisted in Nov 2012. 

Would be glad to be proven wrong in this case.

Saturday, 13 October 2018

DAP, Why the Inconsistency in Adoption of Project Delivery Partner (PDP) in Infrastructure Projects?

Summary: 
Before GE14: 
PDP in projects awarded by BNNOT OK 
PDP in projects awarded by DAPOK 

After GE14: 
PDP in projects awarded by BN: NOT OK. Changed to turnkey format 
PDP in project awarded by DAPOK. No need to change 

In his media statement dated 13 Feb 2012Tony Pua was critical on the PDP structure in MRT project.  

According to him, a 6% project fee is almost unheard of in a project of this scale. Based on an estimate that the KVMRT-SBK is expected to cost RM18 billion, the fees to the PDP alone will be RM1.08 billion. This fee will only be reduced if the PDP wins the tender for the underground tunnelling works - in which case the value of the tunnelling works will be excluded from the calculation of the fee.” 

He added, the structure of the agreement is such that the overall cost of the project is incentivised to be inflated.” 

Ironically, in 2015, the DAP-led Penang State Government appointed SRS Consortium to be the PDP for Penang Transport Master Plan.  

According to Dr Lim Mah Hui, “the selection of SRS as the project delivery partner (PDP) to implement the PTMP was not based on an open tender system, but through a Request-for-Proposal (RFP). 

In an open tender, a client that calls for a tender defines the project with detailed specifications. Parties that submit tenders must then conform to the specifications so that the cheapest tender can be selected. 

However, in an RFP, the tenderers submit different proposals to the client. No two proposals submitted under an RFP are similar, and therefore they cannot be compared. The procurement and negotiation processes thus become more prone to rigging or abuse. 

Wasn’t the adoption of PDP structure in PTMP inconsistent with Tony Pua/ DAP’s stand on PDP format?  

The confusion does not end here. 

After the change in the government on 9 May 2018, the new government are converting the PDP structure in MRT2 and LRT3 into turnkey contracts 

According to Tony Pua“[In PDP] contracts, they get 6% of the cost of the project. The incentive is for the project manager to inflate the cost of the project because it gets 6% of whatever the cost of the project is. So this structure needs to change.”

However, the PTMP by DAP-led Penang State Government will continue to adopt the PDP format in PTMP. (Source) 

DAP, why the inconsistency in adoption of Project Delivery Partner (PDP) in infrastructure projects?

Tuesday, 2 October 2018

Vizione - Total Order Book vs Outstanding Order Book

I am not impressed how Vizione reported its order book in the latest annual report and quarterly results announcement, which I deem it as being misleading.

In the BFM interview today, Dato' Ng Aun Hooi, the Managing Director of Vizione said its order book of RM3.9b is about 7 times of its market cap.

For construction companies, the OUTSTANDING order book is a more common and appropriate number used to gauge the earnings visibility of a construction company, and not the "total order book" used by Vizione in its reporting.

An outstanding order book excludes revenue that has been recognised, reflecting only remaining revenue to be recognised from existing jobs in hand, whereas the total order book used by Vizione includes revenue that has been recognised previously.


The RM3.9b shown in FY18 annual report was total order book, and not OUTSTANDING order book. You get RM3.9b by summing up all the contract values shown in the diagram above.

WHY DIDN'T THE COMPANY REVEAL ITS OUTSTANDING ORDER BOOK, which is more meaningful, in its quarterly earnings announcements and annual report? 

Note that majority of the order book comes from private commercial projects. Vizione's investors should find out:

1. What are these projects?
2. Are all of them under implementation currently? Did the company include projects under planning in its order book?
3. Is it prudent to include projects that are still under planning and the implementation timelines are still uncertain?

WHAT IS THE ACTUAL OUTSTANDING ORDER BOOK OF THE COMPANY?

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Thursday, 27 September 2018

Online Submission of AGM Proxy Form

Kudos to Icapital.biz!

At 2013 AGM, Icapital proposed amendments to the articles of association of the company to allow for appointment of proxies by electronic means. Subsequently, it allowed submission of proxy form via facsimile.

It is a much efficient way of submitting proxy forms compared with submission via mail or handing in the proxy forms personally. It saves time, money, frustration of getting stuck in traffic jam and chance of missing mail.

For the upcoming AGM, Icapital.biz has taken a step further. It now allows submission of proxy forms via online system.

Tricor Online system (TIIH Online) Share owner proxy form be electronically lodged via TIIH Online (applicable for individual share owner only). The website to access TIIH Online is https://online.tiih.com.my. 

Tutorial on how to register as a new user (video download)

Icapital.biz is probably the first listed company in Malaysia to introduce appointment of proxies by electronic means.

What the Minority Shareholders Wacth Group (MSWG) and shareholders can do to make proxy form submission easier is to suggest the adoption of online proxy form submission at AGMs of other listed companies.

A listed company has done it with an established share registrar. Why not?

P/s: However, handling fee of RM5 chargeable for each e-lodgement of document could be a hindrance

Monday, 24 September 2018

List of e-wallet players in Malaysia

Alipay
BigPay (AIRASIA)
Boost (AXIATA)
GrabPay
ipay88
KiplePay (GPACKET)
Lazada
Maybank QRPay (Maybank)
Mcash
MPay (MPAY)
MyXoX (XOX)
Payfy (ASTRO)
PayPal
Presto (PUC)
Razer Pay (BJCORP)
Samsung Pay
Sarawak Pay
TaPay
Touch n Go
vcash (DIGI)
WeChat Pay

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Saturday, 1 September 2018

Among Bursa Malaysia listed companies that have exposure in Indonesia

AIRASIA
AAX
AXIATA
AZRB
BJFOOD
BKAWAN
BOILERM
BPURI
CAB
CBIP
CCK
CCM
CCMDBIO
CHINTEK
CIMB
DIALOG
DNEX
EDGENTA
EITA
FAVCO
FGV
GADANG
GENP
GHLSYS
GLOTEC
HAIO
HAPSENG
IJM/ IJMPLNT
IMASPRO
IOICORP
KFIMA
KLK
KOMARK
KPJ
KWANTAS
LANDMRK
LCTITAN
LUXCHEM
MALAKOF
MAYBANK
NHFATT
OCK
ORIENT
PADINI
PANPAGE
PARKSON
PASUKGB
PENSONIC
PESTECH
PHARMA
PPB
PPHB
QL
SAB
SAMCHEM
SERBADK
SIMEPLT
SIMEPROP
SMISCOR
SUBUR
TENAGA
TEXCHEM
TIENWAH
TSH
TURBO
UMCCA
UMW
UNIMECH
UTDPLT
VS
YTL/ YTLPOWR
ZHULIAN

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Sunday, 10 June 2018

Golden Arbitrage Opportunity in YONGTAI-PA

YONGTAI closed at RM1.52 while its Irredeemable Convertible Preference Share (ICPS), YONGTAI-PA, closed at RM1.14 last Friday.

Profile of YONGTAI-PA can be found here.

The ICPS holders shall have the right to convert the ICPS into new YTB Shares based on the Conversion Price, at the option of the ICPS holder, at any time on any market day from 28 November 2019, being the 3rd anniversary of the date of issue of the ICPS, up to and including the Maturity Date.

Each YONGTAI-PA can be converted into one YONGTAI ordinary share from 28 November 2019 onwards, at the option of ICPS holder (not issuer). No additional cash payment is required for the conversion.

On dividend, 

The Company shall have the sole discretion to decide whether to declare any non-cumulative dividend and the quantum of such dividend, provided always that if dividends are declared to its ordinary shareholders, then dividends in respect of the ICPS shall be paid to the ICPS holders in preference.

If you are a YONGTAI shareholder and you intend to keep the shares for medium to long term investment, at least for 1.5 years, there is a golden arbitrage opportunity.

Sell YONGTAI shares and buy the same amount of YONGTAI-PA concurrently. Convert YONGTAI-PA from 28 Novermber 2019 and you will get back the same amount of YONGTAI ordinary shares. 

Based on last Friday's closing prices, for every 1,000 YONGTAI shares, you can bring down investment cost by RM380 (before transaction costs). That's more than 20% "instant gain".   

It sounds too good to be true.

YONGTAI-PA has a 30-day average daily volume of 214,036.





Encore Melaka is set to have its maiden performance on 1 July 2018.

According to UOB's report dated 31 May 2018, out of 1.4m annual seat capacity, 1m tickets have been taken by 6 local and foreign travel agents for the next 3 years, commited under offtake agreements. This represents a 70% take-up rate for the theatre based on 2 shows daily, at a 2,014 seat theatre.

Travel Agent
Ticket
Target Market
Majestic Express Holidays
500,000
China
Apple Impression Holiday
200,000
Malaysia
Levingo Travel
100,000
Malaysia
Shanghai Ctrip International Travel Service Co
100,000
China
Coachliner 707 Travel & Tour
50,000
Singapore
WTS Travel & Tours
50,000
Singapore

Monday, 14 May 2018

SAMCHEM - Eleventh hour inclusion of resolution of AGM

SAMCHEM scheduled its AGM on 18 May 2018. On 14 May 2018, the company included an additional agenda for tabling at the AGM. Is this legitimate, considering:

1. Insufficient notice period. The additional agenda was added with a notice period of less than 4 days. 

2. No revised proxy form issued. How do those shareholders who are unable to attend the AGM vote without a revised proxy form? Even if a revised proxy form was issued yesterday, it would be too rush to get the proxy form delivered  to the company 48 hours before the AGM. Furthermore, not every shareholder checks company announcement daily.

Saturday, 17 March 2018

Ekovest - From a perspective of a minority shareholder

Ekovest will convene an EGM on 29 March to vote on the takeover of Iskandar Waterfront City Berhad (IWC). My thoughts on the takeover and EGM:

1. Does the takeover of IWC bring value to Ekovest minority shareholders?
It was obvious that the market reacted negatively to the news. After the announcement, the share price of Ekovest gaped down from its previous closing of RM1.16 to open at RM1.01 and close at RM0.95. If the takeover does not go through, it is not unreasonable to expect the share price of Ekovest to recover, at least partially.

2. Taking flexibility away from Ekovest and IWC shareholders.
I like the idea of Ekovest listing its toll concession business. Separating businesses under different listed entities enhances value. By doing so, it gives each minority shareholder the flexibility to decide which businesses to invest/ the weighting of investment in each business according to own preference. By marging Ekovest and IWC, shareholders who like only the concession business have to be exposed to the risks of IWC property business. The flexibility deserves a premium in target PE multiple. By merging Ekovest with IWC, it deprives the shareholders of the flexibility in investing either in Ekovest's existing businesses or IWC's property business. This leads to my point no.3.

3. Why pay RM1.50 when you can buy below RM1.50?
IWC shareholders would most likely opt for the RM1.50/share cash option instead of going for the 1-for-1 share swap as Ekovest share price is currently way below RM1.50. If the takeover goes through, Ekovest shareholders are indirectly paying RM1.50 for each IWC share. If you like IWC, why pay RM1.50/share when you can get it directly below RM1.50 if IWC remains status quo? And you get to decide the weighting/ level of exposure you would like to have in IWC.

4. Bedrock orders from related companies.
The circular highlighted one of the benefits of the takeover is Ekovest may expand its concept of river beautification and rehabilitation along the Gombak River to Johor Bahru through the land bank of the IWC along the Tebrau River, to be promoted as an iconic development in the State of Johor by the enlarged Ekovest Group. 

I do not think it is a big hindrance for Ekovest to get the river beautification and rehabilitation works even if Ekovest and IWC remain status quo. We have seen how related companies such as SUNCON, MGB and FFHB secure bedrock orders from its related companies. To me, this is not a very strong point for Ekovest minority shareholders to vote in favour of the takeover.

5. Late payment by Greenland.
Greenland delayed its second payment (RM46.3m) and third payment (RM46.3m) from 15 October 2017 and 15 January 2018 to 15 March 2018 and 15 April 2018 respectively. 

Why the payments were delayed? Can Greenland settle the huge outstanding amount of RM2.1b promptly?

IWC has yet to announce the receipt of payment for second instalment which has become due on 15 March 2018. 

CONCLUSION: In my opinion, the takeover does not appear to be attractive to Ekovest minority shareholders.