Friday 29 Mar 2024
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THE divestment by Mulpha International Bhd (MIB) of its property subsidiary Mulpha Land Bhd (MLB) — which is about 15% the size of its RM832 million market capitalisation — could help boost interest in the larger group as it seems more focused now to drive its Australian property venture.

With the strong performance of its core property venture in Australia, MIB last year managed to turn around, posting a net profit of RM124.15 million, compared with a loss of RM32.3 million in 2013.

Yet, while the stock has recovered from its lowest point of 34.5 sen in mid-December last year to 38.5 sen currently, it is still traded at a significant discount relative to its net assets of RM2.4 billion, or RM1.11 per share, and its FY2014 earnings per share of 5.82 sen.

Market observers say the group may further streamline its operations, as investors prefer a clearer exposure to its core property development business in Australia, amid volatile performance in its other investments, such as in the hospitality segment in Australia and the construction and infrastructure sector in Malaysia.

Apart from MLB, MIB owns a 22.21% associate stake in builder and power producer Mudajaya Group Bhd.

“What seems to be an emerging trend for MIB is the streamlining of its investments,” says a market observer.

Over the past one year, MIB (fundamental score: 0.45; valuation score: 0.9) has disposed of non-core businesses in trading, crane hire and industrial paint manufacturing, but added property investments, mostly in Australia.

The group had said then it would focus on its developments in Australia and southern Peninsular Malaysia (which refers to Leisure Farm, a 1,765-acre resort-like housing development in Iskandar Malaysia, Johor, with a gross development value of RM700 million), while its subsidiary MLB (fundamental score: 1.3; valuation score: 2.4) would handle projects in northern and central Malaysia.

MIB’s key property project in Australia is the 1,171-acre resort-style integrated residential development called Sanctuary Cove in Gold Coast, which has an estimated GDV of RM6 billion.

In Australia last year, the group acquired the remaining 49.99% stake in Mulpha FKP Pty Ltd for RM168 million, which makes it a wholly owned unit to fully consolidate its earnings. Mulpha FKP is the developer of the 932-acre Norwest Business Park in Baulkham Hills, Sydney.

Also in Sydney last December, MIB  acquired Norwest Marketown shopping centre and some surrounding parcels of land for RM350 million. The property is within the Norwest Business Park and currently houses a shopping mall and car park. There are plans to redevelop it, although the details have yet to be disclosed.

Another acquisition by MIB last year was the 33% stake in New Pegasus Holdings Ltd, which owns a property in London, for RM116 million. There are, however, scant details on this deal.

The three acquisitions in Australia and London work out to a total of RM634 million cash, which MIB said would be funded with borrowings and internal funds. As at Dec 31, 2014, the group’s net borrowings amounted to RM1.36 billion, versus shareholders’ funds of RM2.4 billion.

As MIB expands its real estate investment overseas, one of its non-property investments that stands out is the 22.21% stake in Mudajaya, which is worth some RM163 million.

Mudajaya was favoured as a proxy to the mass rapid transit jobs and power plant projects in and outside the country. However, recent cost overruns and variation orders have pushed it into the red, prompting speculation as to whether MIB will review its investment in the construction outfit.

That said, despite losses in Mudajaya and MIB’s hospitality segment in Australia, the strong performance of MIB’s Australian property ventures as well as at Leisure Farm in Iskandar has lifted the group’s 2014 numbers, with its full-year net profit coming in at RM124.15 million, against a net loss of RM32.26 million in 2013. Revenue also grew 23.5% year on year to RM958.68 million from RM776.39 million the year before.

Yet, MIB’s market capitalisation of RM832.13 million, based on its share price of 38.5 sen last Thursday, makes the group look undervalued, given that it is only 6.7 times 2014 net profit of RM124.15 million and at a 65% discount to its shareholders’ fund of RM2.4 billion.

In view of the stock’s relative underperformance, market observers yearn for more focus on its core property ventures in Australia and Iskandar. The divestment of MLB, which is deemed a small operation relative to MIB’s size, seemed timely.

To recap, on March 6, Teladan Kuasa Sdn Bhd launched a mandatory takeover offer for MLB after exercising a call option granted by MIB back in 2012.

The call option had seen Teladan Kuasa — the private vehicle of Datuk Fakhri Yassin Mahiaddin — acquire 75 million shares or a 32.85% stake in MLB from MIB for 47 sen apiece, or RM35.25 million in total.

Following the transaction, MIB’s stake in MLB dropped to 29.08% from 61.93%, making it an associate company. MIB could even sell all its remaining stake in MLB to Teladan Kuasa by taking up the latter’s takeover offer.

MLB posted a net profit of RM9.62 million on revenue of RM45.08 million in 2014. The company is undertaking a mixed-use development fronting Tropicana Golf & Country Club as well as on a two-acre parcel in Section 13, Petaling Jaya. The projects are said to have a total GDV of over RM1 billion.


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on March 16 - 22, 2015.

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