Be fair to AP Land minority shareholders

Tuesday October 25, 2011

Commrnt by Rita Benoy Bushon

SHAREHOLDERS of Asia Pacific Land Bhd (AP Land) will convene in an EGM today to vote on a proposal first announced on Jan 11 this year: that substantial shareholder Low Chuan Holdings Sdn Bhd (the family-owned company that started AP Land half a century ago, and which is related to three of the executive directors), proposed to acquire the entire company, including all of the assets and liabilities.

The offer price is 45 sen. This is an 8% premium to its closing price of 41.5 sen before the announcement was made, but a 57% discount to the adjusted audited net assets per AP Land share as at Dec 31, 2010.

Notably, only a simple majority (or 50% plus one share) of non-interested shareholders' approval is required for the proposed privatisation, since the offer came before the amendments to the listing requirements (which raised the threshold for shareholder approval to 75%, where a listed company is disposing all, or substantially all, of its assets, resulting in it being no longer suitable for continued listing on Bursa Malaysia). Thus, it has been more than six months since the company's announcement and the 75% Rule kicking in.

When we first responded to this proposal, we noted that many reasons could exist for the deep discount to the company's net tangible assets (NTA), including the fact that much of the value of its assets, mostly backed by landbank, has not been unlocked, and that the company has not enjoyed a stable history of profits since it has lost money in seven of the last 10 years. Nor has it paid any dividends in this period.

Since then, other related views have been sought, including that of the non-interested directors, audit committee, and independent advisers.

First, the non-interested directors. Their opinion was that the proposed disposal was fair and reasonable, after taking into consideration the advice of the principal and independent advisers.

From a financial point of view, the audit committee thought otherwise, since the offer price was at a discount to NTA and would result in a loss on disposal. However, they added that there was an element of reasonableness, after taking into consideration the company's historical market price and trading volume, the trading multiples of other comparable listed property companies and comparative premiums offered in previously similar transactions on Bursa.

Lastly, MIDF Amanah Investment Bank Bhd, the independent adviser, said the proposed disposal was not fair, mainly because of the discount to NTA, though it was reasonable for reasons similar to that stated by the audit committee.

What do we think? Our answer comes in the form of several observations:

● Revenue at AP Land is on a healthy growth trend: rising every year since 2006, and in fact more than doubling to RM125mil in FY2011. Our calculations show revenue growth at an average compounded rate of 67.58% per annum.

● That it has a sizable and well-connected landbank in Rawang. AP Land has 492ha in an area where other major and established developers have already built their own projects; is suitably near to retail chains and will enjoy improved road connectivity with the recent opening of LATAR expressway, as well as the possible direct linkage to LATAR via Bandar Tasik Puteri.

● That AP Land might well have stable income from its oil palm plantations in East Kalimantan. It has a total of about 9,130ha as shown in the circular to shareholders against about 12,800ha shown in the company's FY2010 annual report.

● That the independent adviser's suggestion that share trading is illiquid may not reflect its shareholding structure: the FY2010 annual report and the independent adviser's circular show that the free float of shares is 66% of the total shares issued (excluding treasury shares) and that all the free float shares are held by minority shareholders.

● That management and the board have not been able to create value for shareholders for at least the last decade. AP Land's share price has traded below the offer price of 45 sen per share except for the period between early 2007 to early 2008.

Volatile market

Smaller property companies will often suffer from a poor valuation. Diminished liquidity (often exacerbated by a dominant shareholder) and a crowded property sector with little to distinguish one from the other has contributed to the situation.

Moreover, many of these property companies have not attained the minimum market capitalisation needed by institutional funds to invest. What's more, sentiment in the property market has been inextricably linked to the fortunes of the stock market which is very volatile currently.

Our only response, as always, is to be fair.

Minority investors, who are the same men and women who believed the story of the major shareholders. Thus it is only right that major owners do right when the time comes to part.

Our advice to minority shareholders of AP Land is vote wisely. With your small but influential ownership (10 lots and less) you already make up 90% of the total number of shareholders. Most of the 66% of shareholders eligible to vote on the proposed disposal are minority retail shareholders. (Please refer to our detailed analysis at www. mswg.org.my )

●The writer is chief executive officer of Minority Shareholder Watchdog Group.

http://biz.thestar.com.my/news/story.asp?file=/2011/10/25/business/9762404

Mamee-Double Decker offer seen as fair

Tuesday April 12, 2011

Mamee-Double Decker offer seen as fair
By THOMAS HUONG
huong@thestar.com.my

Analysts say privatisation price of RM4.39 per share acceptable

PETALING JAYA: While minority shareholders have the right to reject the offer to privatise Mamee-Double Decker (M) Bhd, analysts contacted by StarBiz say the capital repayment offer of RM4.39 per share is a fair deal.

Last Friday, the major shareholders of Mamee-Double Decker, who own 72% of the company, proposed a privatisation of the company via Section 64 of the Companies Act, 1965, which entails a capital reduction and repayment.

Such a proposal will require the approval of 75% of the minority shareholders of Mamee-Double Decker. In other words, the Pang family, which controls 72% of Mamee-Double Decker, will not be able to vote on this proposal.

An analyst from Kenanga Research recommends that shareholders accept the proposal as the offer price is at a historical price to earnings ratio (PE) of 15 times.

“The offer is attractive as our fair value is RM3.65 a share,” he said.

Another analyst from a local research firm pointed out that Mamee-Double Decker had plans for a RM100mil capital expenditure (capex) this year to upgrade its facilities and machinery in Malacca.

“A substantial capex may result in higher borrowing costs, which would affect dividend payments,” he said.

Mamee-Double Decker has a gross dividend yield of 2.62%, according to Bloomberg data.

The company itself had articulated this in its announcement of the exercise, when it said that “to fund the capital expenditure, the group may need to incur higher bank borrowings and this may result in higher borrowing costs which will then affect the dividend payment capability of Mamee-Double Decker in the immediate term.”

The company also noted that its shares had been thinly traded. In its announcement on Friday, Mamee-Double Decker pointed out that the daily average trading volume of its shares over the past one year was approximately a mere 0.22% of its total free float.

It said that given the “challenging environment and low trading liquidity” of its shares, the selective capital repayment represents “an opportunity for entitled shareholders to realise their investments in Mamee-Double Decker at an attractive premium above the historical trading prices.”

Another analyst said his research firm has maintained a fair value of RM4.44 a share for Mamee-Double Decker.

“Despite this, we still recommend acceptance of the offer of RM4.39 a share at this juncture,” he said.

OSK Research analyst Eing Kar Mei shares the same view.

“Our target price, based on FY10 results, was RM3.44 a share.

“Also, there are concerns over rising commodity prices, and margins may be under pressure as the company plans to spend a substantial amount on upgrading and expansion exercises,” said Eing.

However, Eing pointed out that the privatisation plan was far from being a done deal as Mamee-Double Decker needed to obtain approval from 75% of the remaining minority stakeholders.

To be noted is that the controlling shareholders, namely the Pang family and associated parties, would waive their entitlement from receiving cash under the capital repayment exercise.

OSK Investment Bank Bhd and OCBC Advisers (Malaysia) Sdn Bhd are the principal adviser and the financial adviser respectively for the exercise.

Mamee-Double Decker's shares surged 17% or 60 sen yesterday to close at RM4.20.

http://biz.thestar.com.my/news/story.asp?file=/2011/4/12/business/8462902&sec=business



Related:
Almost as many companies taken private as IPOs the past 6 months
http://myinvestingnotes.blogspot.com/2011/04/almost-as-many-companies-taken-private.html

“There are multiple reasons why companies are taken private. For instance, the owners of a company sees value in a company and will rather privatise it so that the profits can be kept for themselves. Also, some owners may want to list the company in other markets such as Hong Kong as they seek out better value,”said TA Securities Holdings Bhd head of research Kaladher Govindan.

Almost as many companies taken private as IPOs the past 6 months

Tuesday April 12, 2011

Almost as many companies taken private as IPOs the past 6 months
By JEEVA ARULAMPALAM



PETALING JAYA: Although the number of initial public offerings on the local stock exchange doubled to 29 last year from 2009 and the first quarter of this year has seen nine companies list, there was also a sizeable number of companies being taken private.

In comparison, 13 companies have been listed on the Main Market of Bursa Malaysia since last October to April this year while over 10 Main Market companies received privatisation proposals in that same duration.

Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose said a reason for the slew of privatisation was because those stocks were trading at valuation discounts in comparison to regional peers.

He added that aside from companies being undervalued by the local market, another rational was that “we are on the cusp of a corporate spending cycle”, since the corporate sector has been largely cashed up.

“There are multiple reasons why companies are taken private. For instance, the owners of a company sees value in a company and will rather privatise it so that the profits can be kept for themselves. Also, some owners may want to list the company in other markets such as Hong Kong as they seek out better value,” said TA Securities Holdings Bhd head of research Kaladher Govindan.

He added that as with government initiatives undertaken to attract foreign direct investments into the country, there should be policies or incentives to make it more attractive to keep companies listed here, especially since their operations are based domestically.

A popular route used for such privatisation proposals by its major shareholders, notably in the last six months, was the takeover of assets and liabilities of the listed entities, including Sunway Holdings Bhd and Sunway City Bhd, PLUS Expressways Bhd, Emivest Bhd, Leong Hup Holdings Bhd and Asia Pacific Land Bhd.

For instance, Sunway Group chairman Tan Sri Jeffrey Cheah and his daughter proposed to take over the assets and liabilities of Sunway Holdings Bhd and Sunway City Bhd (listed on the Main Market) late last year through their own vehicle Sunway Sdn Bhd. After the privatisation of both these companies, the plan is to list Sunway Sdn Bhd sometime this year.

Other companies to have more recently received privatisation proposals include Berjaya Retail Bhd and Mamee-Double Decker (M) Bhd.

While the number of listings may be comparable to the quantum of companies being taken private, it must be noted that there were two significant listings Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and Petronas Chemicals Group Bhd by market capitalisation in the final quarter of last year. Both companies are Petronas-owned.

As at yesterday, MMHE and Petronas Chemicals had a market capitalisation of RM10.99bil and RM53.32bil respectively, while the latter is a member of the FTSE Bursa Malaysia KL Composite Index.

However, industry players note that companies being taken private equal less stock options for investors in the market and will not bode well for overall market sentiment.

Over the last nine years, the total market capitalisation of Bursa Malaysia had grown at a rate of 10% per annum, while stock markets in Indonesia and Singapore had grown at 24% and 17% respectively.

Malaysia's MSCI Asia excluding Japan weighting has shrunk to only 3.2% from 6% in 2000, causing international fund managers to disregard Bursa.

To add to this, Bursa's liquidity has lost its vibrancy, with its liquidity ranking in Asia dropping from third in 1996 to 14th this year. There is also limited diversity in the market, be it in terms of products or currency.

Invest Malaysia 2011, which starts today over a two day period, is expected to see the unveiling of several highly anticipated IPOs which include the listing of several units under Felda Global Ventures Holdings Sdn Bhd.

Telling an old story

The last 2 years, before the onset of this severe bear market, the following stocks of mine were taken private: Maxis, MOX, VADS, ICP.

These were viewed with some annoyance then, as they were carefully selected stocks for the long term.

Maxis and MOX were privatised before the downturn started. During the downturn, VADS share price was well supported near to the privatisation offer price.

On the other hand, each ICP was exchanged for 30c cash and 0.6 shares of IJM priced at 5.80. Even before the privatisation, the price of IJM went down significantly. Fortunately, the price of IJM subsequently rebounded back to around $5.80 recently and those who held onto the IJM shares obtained through the privatisation of their ICP shares were able to cash out at close to the original offer.

In retrospect, the privatisation of these good companies by the major shareholders, probably saved the minority shareholders from short-term losses, as these shares would definitely have gone down lower with the overall bear market.

Sometimes, we are saved or rewarded by the swings of the market. :-)