Saturday January 5, 2013

Defining business moments of 2012


Chin has said no to RM90mil for his stake in Ingens, seeing better value in growing his business and reaping success from it later. Chin has said no to RM90mil for his stake in Ingens, seeing better value in growing his business and reaping success from it later.

IN one of the most dramatic manoeuvres the Malaysian stock market has seen thus far, Ingenuity Solution Bhd's (Ingens) recently-appointed executive director Chin Boon Long said “thanks, but no thanks” to RM90mil for his stake in Ingens, seeing better value in growing his business and reaping success from it later.

While his rejection of such an attractive buyout offer boggled minds, he insisted on forging ahead with his grand plan of integrating Ingens with another ACE Market company that he controls, 1 Utopia Bhd.

To recap, Ninetology Marketing Sdn Bhd had offered to take Ingens over at 55 sen per share for 39.44% stake at the end of August, costing RM117.85mil. The offer valued Ingens at a rich 16 times forecast earnings of the company, including forecast earnings from its telecommunications business.

Ninetology is an Asean mobile device technology company, while Ingens' core business is the manufacture of IT hardware and software for business solutions.

Prior to that startling offer, Ingens' share price had been moving up thoroughout the year sparking three unusual market activity enquiries since March.

Ingenuity's share price was traded around six sen in January before climbing to a high of 14 sen in March and hovered around 10 sen before it charged to a high of 46.5 sen on August 23. The company's share price then plunged to 23 sen on Sept 5 after Chin rejected Ninetology's offer.

About three weeks later, Chin was appointed Ingens chairman, succeeding Datuk Feroz A.S. Moidunny, who resigned as chairman and director in early September due to personal and other commitments.

Co-founder Wong Hun Liang also sold all his shares in the company to Chin, reason being personal and financial. At this point, Chin has a 29.15% stake in Ingens.

It was revealed that Chin had introduced Ninetology to Ingens two months before Chin made his entry with a stake purchase in Ingens and before both companies announced their partnership to distribute ZTE products in August. However, he claimed having no prior knowledge of the buyout offer neither being involved in it.

Although the saga has fizzled out, the question remains: What's next for Chin, Ingens as well as 1 Utopia?

WITH various airlines flocking to secure a slice of the thriving Asian market, passengers will have much to gain from the selection of airlines in the future. Among the airlines wanting to land a bigger footprint in the region are Lion, Tiger, Scoot, Jetstar and soon to be launched Malindo Air. Jetstar, Tiger and Scoot are giving AirAsia X healthy competition in the markets the latter is in.

However, it is Malaysia-Indonesia airline Malindo Air that seems to be really raising the game in the industry which saw both AirAsia and Malaysia Airlines (MAS) shopping for airplanes. In the months following the announcement of Malindo's participation in the local market, homegrown airlines AirAsia and MAS went shopping for airplanes to gear up their capacity in expectation of Malindo's entrance in April 2013.

AirAsia, deemed in direct competition with low-cost carrier Malindo, went into negotiations with Airbus SAS for an order of 100 more A320s in August. Prior to that, it had outstanding orders for 272 single-aisle A320s to support its expansion across the region.

In a move to defend its markets share, AirAsia group chief executive officer Tan Sri Tony Fernandes also decided to focus on the improving profits from its “gold mines” Malaysia, Thailand and Indonesia although the carrier will continue to look at potential new bases in Taiwan, South Korea, Vietnam and India.

Affin Research believed this was done to capitalise and capture the domestic routes and compete with the impending entry of Malindo Air.

Just last month, MAS and the French-Italian aircraft manufacturer ATR inked a memorandum of understanding for the purchase of 36 brand-new ATR 72-600 aircraft worth RM3bil.

MAS' wholly-owned subsidiary Firefly will take 20 new aircraft while the rest will be inducted into MASwings (also a wholly-owned subsidiary of MAS).

Currently, Firefly operates with 12 ATR 72-500 while MASwings has 10 similar aircraft. The new fleet is scheduled for delivery from second quarter of this year.

Credit Suisse Group AG said of the scenario: “The accelerated roll out of aircraft in Malaysia to dominate routes ahead of the start up of Malindo Airways is a good defensive measure. Coupled with its strong branding, we expect AirAsia to withstand the challenge.”

When reports first surfaced in September that the low-cost carrier was to enter Malaysia, AirAsia saw its share price fall a sign that the investing community expected stiff competition.

To this, analysts opined that the market overreacted to the Malindo Air announcement, citing inevitable competition in any industry, although they expect the share price to remain depressed in the near term.

Standing to gain from the competitive atmosphere would be Malaysia Airports Holdings Bhd (MAHB).

CIMB Research noted that MAHB will get additional revenue through passenger service charges, landing and parking fees as well as higher retail spendings.

While AirAsia and Malindo may cut fares to stimulate demand, which could hurt margins for both carriers, MAHB would gain as it is unaffected by the competition.

IN August last year, Malaysia Airlines (MAS) and AirAsia decided to set up a comprehensive collaboration framework (CCF) to allow MAS, AirAsia and AirAsia X to look for opportunities to facilitate cooperation, cost savings, and reduction of competition between the airlines.

The deal involved MAS' parent company Khazanah Nasional Bhd and AirAsia's major shareholder Tune Air Sdn Bhd to enter into a share-swap agreement, which would enable cross-holding in both airlines. As a result, Tune Air took a 20.5% stake in MAS, and Khazanah a 10% stake in the low-cost carrier.

For the financial year end Dec 31, 2011, MAS posted a RM2.5bil net loss, representing the largest loss in its history.

Although post the signing of the share-swap agreement with AirAsia, the two airlines were working together instead of competing against each other, many industry observers questioned the catalyst that could possible turn MAS around.

However, the share swap agreement faced many opposing factors.

After the agreement was inked, MAS went through a total board revamp and changes were made at management level. The new management style had created uneasiness among MAS employees.

In March 2012, speculation flared that the Government was to step in to unwind the share swap deal. Apart from this, another complication the MAS-AirAsia deal faced was with the Malaysian Competition Commission (MyCC). MyCC had earlier indicated it was investigating the deal to determine if there were any breaches of anti-competitive behaviour or abuse of dominant position.

Many were concerned that the share swap would bring more expensive airfares.

Then in May, MAS announced the unwinding of the share-swap agreement, a mere eight months after it was inked. In its filing with Bursa Malaysia, parent company Khazanah said it terminated the share swap with AirAsia's major shareholder Tune Air. That same day, both Tan Sri Tony Fernandes and Datuk Kamarudin Meranun resigned from the MAS board.

Although the deal was cancelled, the collaboration pact between both airlines would continue, but with modifications. Both parties entered into supplementary agreements to jointly explore and set up joint-venture companies to provide aircraft component maintenance support and repair services. Also, a special-purpose vehicle would be set up for procurement, with the aim of saving cost.

As a result of the termination, the shares were transferred back to the original owners, which saw Khazanah's stake in MAS rising from 49% to 69.5%. Although this triggered the requirement to make a general offer, Khazanah had received a waiver from the Securities Commission from making the offer.

AS the world's second-largest palm oil producer, the highs and lows of the commodity price and inventory are certainly a great economic concern and the year 2012 did see some record highs and lows in this industry.

A few months back, industry observers and analysts expected the crude palm oil (CPO) price to fall below RM3,000 per tonne mark at the year-end and predicted the downward trend to continue in 2013. The average CPO price in 2011 was RM3,219 per tonne.

To recap market sentiments, planters and palm oil traders foresee CPO prices to remain weak until the first quarter of 2013 as year-end palm oil stocks level could stay near record high levels at 2.5 million to 3 million tonnes, capping CPO prices to trade below RM2,500 per tonne.

However, in the last days of 2012, prices began to pick up gently based on the speculation that China's demand for palm oil will rise following expectations of tight soyabean supply. The impending lunar new year celebrations could also help reduce CPO stocks and thus buoy the price.

The CPO price tumbled nearly 30% throughout 2012, hitting a three-year low on Dec 13, at RM2,217 per tonne in intra-day trade, to settle at RM2,230.

In the last week of December, the three-month CPO price hovered around the RM2,250 per tonne level.

In October, plantation companies experienced a knee-jerk reaction when the commodity futures on Bursa Malaysia plunged below the RM2,300 mark as it went through the biggest single-day drop since July 2008, mainly due to supply and demand mismatch.

In the same month, the Malaysian Government had also intended to lower export duty to be implemented this month.

To that move, research houses have cited a short-term negative impact on pure upstream players in the industry although in the long run it will place Malaysia on a more level playing field with Indonesia.

Prior to the new duty structure, no CPO was exported out of the country except for those with CPO duty-free quota because the 23% export tax rate was deemed too punitive. CPO produced has always been fully absorbed by downstream players in Malaysia.

Maybank IB said upstream players could now opt to export their CPO stocks as their CPO tanks were full but they would have to pay export taxes, which would lower net revenue.

The lower CPO export tax rate would also promote export activities for the accumulated CPO stockpile in the country.

Analysts had predicted Malaysia could set the tax rate at zero for January, given the average sales price from Nov 10 to Dec 9 fell below reference price of RM2,250 per tonne, which the Government later announced.

That all said, analysts have slashed their CPO average price forecast to between RM2,800 and RM2,900 from the previous RM3,000.

Whether the CPO price will rise to challenge the new mark would be dependent on the world economy as well as the effects of the new export tax rate.

AS one of the more prominent signs of Asean's economic growth, the redevelopment of London's Battersea power station is expected to keep the eyes of the property realm peeled in the years to come as the local consortium, made up of SP Setia Bhd, Sime Darby Bhd and the Employees Provident Fund (EPF), engraves Malaysia's name higher on the international property pedestal.

It has indeed been a year sprinkled with foreign property acquisitions.

In early June, SP Setia and Sime Darby surfaced as the preferred bidders for the defunct-but-iconic power station, beating Russian tycoon and Chelsea Football Club owner Roman Abramovich and British property investor Godfrey Bradman to it.

A month later, not only did both groups enter into an agreement to acquire the property, but the EPF also came into the picture as a 20% stakeholder in the joint-venture company, Battersea Project Holding Co Ltd, set up to develop Battersea. SP Setia and Sime Darby each hold 40% stakes.

On Sept 4, Battersea Project Holding acquired the site for £400mil (RM1.98bil), which is £235 (RM1,163) per sq ft, sealing the deal for the consortium as the new owners. The project, which already has planning permission, is sited on a 39.1-acre freehold land facing the River Thames and is projected to hit an astounding gross development value (GDV) of £8bil (RM39.6bil) over a period of 15 years.

The mixed development, which was launched this month, will feature private residential units, serviced apartments, office, retail, food and beverage, and hotel properties.

The consortium intends to regenerate and restore the power station site, build 3,400 new homes and offer 1.73 million sq ft office space, more than 550,000 sq ft of shops, 160,000 sq ft of food and beverage outlets and two new underground stations extended from the Northern Line. There will also be 400 rooms in two hotels and community space for culture and leisure as well as new community facilities.

Over a two-year period, the development cost is estimated to be £200mil (RM990mil).

Phase One, consisting of 800 apartments above a commercial podium with an estimated GDV of £1bil (RM4.95bil), is targeted to begin in the third quarter of this year and scheduled to be completed in 2017. No more than 400 units will be open for Malaysian ownership.

Phase two will commence in the last quarter of this year and run concurrently until 2019. Preparatory work has begun and ground-breaking is scheduled to be between July and September 2013.

The site, which for almost three decades has been waiting for a developer to successfully redevelop it, was what SP Setia president and chief executive officer Tan Sri Liew Kee Sin called a government-to-government project.

The consortium has a £300mil (RM1.49bil) bridging loan from CIMB Bank to finance the acquisition and a £1bil (RM4.95bil) loan from the British government to fund an extension of London's underground train line to the Nine Elms area on the south bank of the River Thames.

FOR three decades, KFC Holdings Bhd (KFCH) caught the attention of many because of its attractive cash flow with many suitors at the door. Then there was the occasional governance issues that negatively impacted the company.

In closing this long chapter of corporate tussles, KFCH finally bowed out of Bursa Malaysia at the end of last year when Johor Corp (JCorp), in partnership with private equity firm CVC Capital Partner, had in December 2011 offered to buy KFCH and its parent QSR Brands Bhd out, with Employees Provident Fund's special-purpose vehicle Massive Equity Sdn Bhd in a RM5.2bil deal.

KFCH and its QSR Brands were privatised with unanimous shareholders' support of both listed firms two months ago.

Although shareholders raised certain concerns about the earnings of both companies being on a downtrend since the start of the year, they voted in congruence.

Shareholders are expected to receive their proceeds from the deal by year-end, else Massive Equity will consider paying out dividends. The companies are expected to be delisted by the middle of this month.

KFCH's shareholders were offered RM4 for each share and RM1 for each warrant while QSR shareholders RM6.80 for each share and RM3.79 for each warrant.

In the soap opera of corporate tussles, KFCH has eluded various colourful personalities. Among them are Datuk George Ting Yew Tong, Abdullah Omar, Datuk Ishak Ismail, Datuk John Soh Chee Wen and Teh Soon Seng.

In 1994, Ishak won a high-profile battle against Leong Hup Holdings Bhd and took control of KFCH, only to find the fast-food market leader a constant takeover target.

Ting, hailed as the stalwart for KFCH during its golden years, charted exponential growth for the company and net sales grew 2.5 times to RM860.7mil in 1997, from RM323mil in 1992.

QSR came about in 2004 following the restructuring of KFCH, CI Holdings Bhd and Ayamas Food Corp Bhd after Ishak's exit from the group due to dissatisfaction from franchisor Yum! Restaurants International.

Tan Sri Nik Ibrahim, who is said to be linked to Soh, emerged to control QSR and KFCH in 2005. His short tenure of close to two years from 2006 saw the profitability of KFCH double with the implementation of some enhanced transparency measures to raise governance standards.

JCorp came into the picture in 2006. JCorp, through Kulim, controls QSR Brands and ultimately KFCH. The multi-layered shareholding structure was mooted to make KFCH a difficult takeover target but has been deemed inefficient as JCorp could not have direct control over the cash cow.

In 2010, Tan Sri Halim Saad and the Carlyle Group offered RM5.60 and upped his bid to RM6.70 per share for KFCH. Both offers were rejected by Kulim's and QSR's management.

Being taken off the market for perhaps a while, KFCH may not be “finger-lickin' good” now, but it is for certain still a stock “so good”.

A NAME familiar with many Malaysian households, Astro Malaysia Holdings Bhd seems ready to push forward and ignore the flak it received for the stock's lacklustre performance post its listing.

Just 2 years ago, Astro, which was listed under a different name Astro All Asia Networks Plc, was taken private.

In its first listing, which was about nine years ago, the initial public offering (IPO) was at RM3.65 a share.

After Measat-1's launch into outer space in 1996, Astro quickly spread its coverage and became Malaysia's first satellite pay-TV operator. Back then, it offered only 36 TV and radio channels.

Chief executive officer Datuk Rohana Rozhan said the listed company was then supposed to operate its business in South-East Asia. However, plans fell through and Astro's overseas ventures soured, some of which dragged Astro to court.

It was then in 2010 that its shareholders including billionaire T. Ananda Krishnan offered to take the company private, for a price of RM4.30 per share. The company then had a market capitalisation of RM8.3bil.

On Oct 19, 2012, Astro was re-listed on the Main Market of Bursa Malaysia with an IPO price of RM3.00 per share. It garnered RM4.55bil for its IPO, and was the country's third largest IPO in the year behind IHH Healthcare Bhd and Felda Global Ventures Holdings Bhd.

Astro offered some 1.5 billion shares up to both institutional and retail investors. From the 1.5 billion shares, 31.2% were new shares and the remainder 68.8% existing shares. Institutional investors were allocated 1.26 billion shares while only 259.9 million shares were made available to the public.

However, the first day of re-listing disappointed many as the stock closed unchanged from its reference price of RM3. It was the most actively traded stock of the day, with 269.7 million shares done. Its trade also accounted for 19% of the FBM KLCI's total volume of 1.378 billion shares traded that day.

Analysts had expected the stock's lacklustre first-day performance reasoning that the valuation was too rich. Based on the RM3.00 IPO price, Astro is valued at more than 30 times its estimated 2013 earnings. Other listed media groups such as Star Publications (M) Bhd, Media Chinese International Bhd and Media Prima Bhd were then trading at price-to-earnings of between 12 and 14 times.

Therefore, analysts pointed out the possibility for a near-term re-rating for the media sector.

The success of Astro Malaysia Holdings Bhd re-listing remains to be seen. Since its IPO, the stock has yet to close above its IPO price of RM3. In November, it fell to a low of RM2.59. The newly listed entity holds the Malaysian media assets and is focusing to take a fair share of the consumer wallet and advertising.

With a current penetration rate of 50% into Malaysian households, Rohana says there is plenty of room for Astro to grow.

This will hinge on new subscribers, higher take-up of “value-add” services among its existing subscribers, as well as an increase in advertising revenue.

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