Showing posts with label private limited company. Show all posts
Showing posts with label private limited company. Show all posts

Tuesday 6 April 2010

A quick look at Tongher 2009

Tong Herr Resources Berhad Company

Business Description:
Tong Herr Resources Berhad. The Group's principal activities are manufacturing and selling stainless steel fasteners. Products include nuts, bolts and screws and all other threaded items. It also operates as an investment holding company. Operations are carried out in Malaysia and Thailand. The Group distributes its products to Asia, Europe, North America and other countries.

Wright Quality Rating: LAC0

Stock Performance Chart for Tong Herr Resources Berhad



A quick look at Tongher
http://spreadsheets.google.com/pub?key=tfz75IeJ7n6inThzlEPxfMg&output=html

This is a cyclical stock.  Its industry is down with the poor economy.  However, its balance sheet is strong.  It has turned in profits for the last 2 quarters.  It has cash equivalent of RM 155.331 million and this equates to cash of RM 1.22 per share.

Shares Outstanding:  127.43 million
Closely Held Shares:  77.320 million




With so many shares closely held, this company is little different from a private limited company.  No wonder it is traded at a steep discount.

Why does this company keep so much cash unproductively employed?

Friday 15 January 2010

Beware of buying Private Limited Companies

Wednesday January 13, 2010
Beware of buying Private Limited Companies (PLCs)
Personal Investing - By Ooi Kok Hwa



SOME investors are concerned over the shares that they own in some private limited companies (companies that are registered as “Sdn Bhd”).

Most are just minority shareholders, owning about 10%-20% of the companies’ shares, and they have not received much dividend from the companies over the past few years.

Now that they intend to sell their shares, they do not know the right price to sell. In this article, we will look at two main key issues related to owning private limited companies’ shares, namely

  • lack of marketability discount (LOMD) and
  • lack of control discount (LOCD). 
Assuming two similar size companies, one public listed and the other a private limited company, the discount on the LOMD is as much as 35% (based on Mergerstat Studies in the US).



Comparing a major shareholder of a public listed company (Position A) and a major shareholder of another similar size but not listed company (Position C), the discount on LOMD is about 35% ((RM100-RM65)/RM65).

Many investors do not realise that there are big differences between owning controlling interest and non-controlling interest shares. In general, if we own 50.1% of a company’s shares, we should be in a controlling position.

From the table above, whether you are in Position B, which is the non-controlling interest of a listed company or position D, which is the non-controlling position of a non-listed company, the LOCD can be as much as 35% (based on Mergerstat Studies in the US).

For example, if you own 49.9% of a private limited company (you are in Position D) and your partner is the major shareholder of the company with 50.1% interest (he is in Position C), which is 0.2% higher than you, his shares are worth RM65 each, but your shares will only worth about RM42 each, which is at a LOCD of 35% ((RM65-RM42)/RM65).

The main reason for this LOCD is that your partner, having the controlling interest, he can pay himself with very high salary, high director’s fee and enjoy all other benefits from the company.

Since you do not have the controlling position of the company, you have no control over a lot of company’s major decisions. Given that it is not a listed company, your return will depend highly on the dividend payments from the company.

If your partner does not want to share company’s profits with you by not paying out any dividend payments, you will not receive any returns for holding this company’s shares.

Nevertheless, if you own 49.9% of a listed company, which is in Position B, even though your shares is still subject to about a 35% LOCD compared with Position A ((RM100-RM65)/RM100), given that it is a public listed company on Bursa Malaysia, you can easily dispose of your shares in the open market.

The worst case is if you are holding a minority interest and it is a private limited company (Position D), your shares’ value is only at 58% discount ((RM100-RM42)/RM42) compared with a controlling interest in a public listed company (Position A) as your shares are subject to discounts due to lack of marketability and lack of control.

Therefore, when position A is worth RM100 per share, the value per share in Position B and Position C is about the same at RM65 per share.

Hence, if you intend to invest in any private limited companies, you need to be in the controlling position of the companies. Otherwise, if you are just a minority shareholder, it is more advisable for you to invest in listed companies.


Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.


http://biz.thestar.com.my/news/story.asp?file=/2010/1/13/business/5458529&sec=business