TheEdgeDaily: 08-05-2008: Zelan ripe for privatisation?
by Nadia S Hassan
KUALA LUMPUR: Construction outfit and aspiring power player, Zelan Bhd, is an ideal candidate for privatisation, according to analysts. RHB Research sees a high probability of it being taken private, given its underperforming share price and low cost of doing so. “From a major shareholder’s standpoint, it costs almost nothing to take full ownership of the company, thanks to the availability of liquid assets in Zelan in the form of cash and IJM shares,” the research house said. RHB estimated that based on a theoretical offer price of RM3.10, it would cost Zelan’s major shareholders (MMC Corporation Bhd along with Zelan chief executive officer Albert Chang and associates) RM803 million to buy out the remaining shares. MMC holds a 39.3% stake in Zelan, while Chang holds 14.7%. Zelan’s share price rose six sen to RM2.63 yesterday, with more than 700,000 shares traded. “The sum of money could easily be recouped post-privatisation by stripping off Zelan’s two key liquid assets, its net cash pile of RM336 million as at the end of last year and 82.3 million IJM shares with a market value of RM444 million,” said RHB Research. It added that the controlling shareholders could also choose to pare their stakes during a construction sector upswing and thus net huge profits. The research house also noted that MMC had not hesitated to take its public-listed companies private in the past. The most recent example is that of Malakoff Bhd, which MMC took private two years ago. Although construction contracts have slowed down globally, RHB Research said Zelan would be at least spared the politically-linked uncertainties plaguing the local market as the bulk of its earnings came from overseas. The research house currently holds an “outperform” call on the stock with a fair value of RM5.53. Among the challenges that Zelan faces going forward include high raw material costs that will put pressure on margins. The good news is that Zelan is putting measures in place to protect its margins, which includes forward buying of certain raw materials and insourcing more of its works, according to RHB Research. “Zelan is also actively exploring new markets such as Africa and Vietnam,” it added.
Is the above article responsible journalism or is it rumour mongering? If the above two categories were the North and South poles respectively, I'm sorry to say that the article has moved below the equator appreciably. There are two "bads" here.
First, the article plucked a research article, or so called research article, and lay it on that Zelan is about to be privatised. If you read the entire article, there is no "catalyst" being mentioned on likelihood of it happening. The basis was the research report.
Secondly, RHB Research, OMG, why Zelan? There is no substance other than the SOTP (sum of the parts) of Zelan is more than the current market cap. You may initiate a report if there were significant catalysts, e.g. disposal or acquisition of shares by major shareholder; likelihood of securing a very big project which would pump future earnings; company lining up a major bond issue, etc... nothing, there was nothing! You can publish the same report 3 months back, 6 months back, 6 month in the future or a year down the bloody road, makes no fucking difference. Very poor research effort, if you even call it that.
The Edge should have seen through the piece of shoddy work, but no.... I could think other sinister reasons for both to put up the article but I shall not go there. Why open yourself up to vicious whispers? Ethics and integrity, people. I may be lacking in both and most people are, but we all sure can see the lack of both in others when its that visible and in print. Zelan may be a candidate for privatisation, but why Zelan when you cannot offer catalysts.
Can I also offer a few potential privatisations off the top of my head, following your logic:
1) MBM Resources - profitable, current share price RM2.90, has only a P/BV of just 0.7, meaning its NAV is around RM4.00, why not privatise?
2) MMC - Why choose Zelan, why not go for the parent MMC, MMC current price RM3.64, but has a net RNAV of RM5.04, isn't that better?
3) Hap Seng - current price RM2.78, has a RNAV of RM3.85, write about them also la!
4) Faber - current price RM1.03, has a sum-of-the-parts value of RM2.77, that's got to be great right? Write about them la!
These are examples OFF THE TOP OF MY HEAD, you all can come up with even more if you spend more than a few minutes in your daily grind. I know I am making enemies but before you dislike me (like I care), focus on why I am criticising, then you can also dislike me, but focus on the subject matter.
p/s photo: Andrea Fonseka
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