Low interest rate and high liquidity good for privatisation exercises and M&As

PETALING JAYA - More corporate exercises are expected to be completed this year, as favourable market conditions like the current low interest rates and high financial liquidity lure companies to go for more.

UOB KayHian Malaysia research head Vincent Khoo said in a report that conditions such as low interest rates and high liquidity were supportive of privatisation, mergers and acquisitions (M&As), reverse takeovers (RTOs), asset monetisation and spin-offs. He highlighted MMC Corp Bhd as a candidate primed for privatisation.

"It is notably a rare deep-value large-cap stock that trades at up to a 40 per cent discount to its consensus sum-of-parts valuation.

Another alternative value-enhancing option is for MMC Corp to list its independent power producer and port divisions, which could separately fetch values close to MMC Corp's market cap.

Operationally, MMC Corp should benefit from the rising manufacturing activities in Johor, given its vast landbank around the Senai Airport and the Port of Tanjung Pelepas," said Khoo.

MMC Corp climbed to a three-year high yesterday, following a report quoting sources that said the company could undergo a capital reduction exercise before delisting.

It closed 19 sen or 6.6 per cent higher to RM3.04, having reached an intra-day high of RM3.17, levels the company had last seen in January 2010.

MMC Corp managing director Datuk Seri Che Khalib Mohamad Noh did not respond to queries from StarBiz.

Affin Investment Bank analyst Chong Lee Len said if the offer (capital reduction) did materialise at RM3.70 to RM3.90 per share, it would be advisable for minority shareholders to accept the "privatisation" exercise, as the "price tag" was close to its upgraded real net asset value estimate of RM4.05 per share.

Meanwhile, Khoo also highlighted that Malaysian Resources Corp Bhd (MRCB) is expected to regain prominence in 2014 for riding on real estate investment trust (REIT) benefits, disposing non-core assets and amicably resolving a court dispute with Selangor State Development Corp or PKNS, a deal that should allow it to eventually launch more commercial developments in the prized PJ Sentral area.

"We expect MRCB to launch an office-retail REIT (it owns five properties mainly in its iconic KL Sentral development) that could fetch an enterprise value of RM1.9bil," he said.

He also said Hong Leong Industries Bhd's (HLI) proposal to inject its effective 75 per cent stake in Hume Cement Sdn Bhd into Narra Industries Bhd would be implemented in the first quarter of 2014.

"Post-exercise, HLI shareholders would also directly own Narra shares (every HLI share is entitled to 1.08 Hume Cement shares), and we note that Narra (which would own 100 per cent of Hume Cement) could be worth as much as RM540mil (equivalent to RM2.20 per HLI share) should Hume Cement be valued at the industry's price to earnings of around 15 times," he said.

According to him, the property sector also offers many situational plays, including RTOs, privatisations, M&As, future REIT beneficiaries and asset monetisation exercises.

These themes could benefit MRCB, MPHB Capital Bhd and Tropicana Corp Bhd, which could significantly monetise their property assets via outright sales or effectively REITing their investment properties, although among these three companies, MRCB should achieve better near-term momentum, Malaysia Aica Bhd and Furniweb Industrial Products Bhd, which appear to be transforming into property companies, and S P Setia Bhd, which might be merged with parent Permodalan Nasional Bhd's property arm, and Eastern & Oriental Property which could eventually be privatised by Sime Darby Bhd, Chong said.