Thursday 28 Mar 2024
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KUALA LUMPUR: Boustead Holdings Bhd’s move to expand its revenue stream to automated traffic enforcement system (AES) operations would result in a “slight negative” impact on its earnings, according to HLIB Research.

The conglomerate announced last Friday its proposal to acquire 60 million new shares, representing a 50% stake in Irat Properties Sdn Bhd for RM127.8 million.

Irat is involved in property investment, and the company through its 70%-owned Irat Hotels & Resorts Sdn Bhd owns two properties in the city centre, namely Chulan Office Tower Block and The Royale Chulan Kuala Lumpur Hotel, which are collectively valued at a total of RM508 million.

Irat is in the midst of acquiring ATES Sdn Bhd and Beta Tegap Sdn Bhd, which are joint operators of the AES. However, the price tags for the acquisitions of ATES and Beta Tegap were not disclosed.

“Positive contribution from the additional hotel (The Royale Chulan) and office block (Chulan Office Tower) will likely be negated by the AES operations, which are still loss -making,” said HLIB Research .

The research house added that the impact on Boustead’s balance sheet would be negligible, as the acquisition would bring up Boustead’s net debt and net gearing from RM5.9 billion and 1.0 times, to RM6 billion and 1.02 times, respectively.

ATES is principally engaged to undertake the operations of AES in Perlis, Kedah, Penang, Perak, Kelantan, Sarawak, Sabah and Labuan while Beta Tegap undertakes AES operations in Kuala Lumpur, Putrajaya, Selangor, Negeri Sembilan, Melaka, Johor, Pahang and Terengganu. ATES recorded a net loss of RM20.61 million for its financial year ended June 30, 2014 (FY14) with net liabilities of RM47.12 million, while Beta Tegap reported a net loss of RM22.58 million in FY14 with net liabilities of RM32.8 million.

For FY13, ATES reported a net loss of RM19.28million on the back of RM4.66 million in revenue. In the same year, Beta Tegap reported a net loss of RM21.6 million on revenue of RM11.54 million.

The proposed acquisition of Irat by Boustead is expected to be completed by the second quarter this year. Boustead’s largest shareholder Lembaga Tabung Angkatan Tentera (LTAT), and Irat Holdings Sdn Bhd hold the remaining 50% stake in Irat, upon completion of the subscription exercise.

LTAT is also subscribing to 550,000 redeemable convertible preference shares (RCPS) of RM0.01 each in Irat, at an issue price of RM100 per RCPS for RM55 million. 

According to Boustead’s announcement, AES is an automated traffic enforcement system concession, which was awarded by the government to ATES and Beta Tegap on Dec 9, 2011. 

AES and Beta Tegap are to establish and operate a network of AES to monitor all federal roads, highways and expressways in Malaysia under a build-operate-transfer basis for a concession period of 66 months.

However, the federal government abruptly took back the project from ATES and Beta Tegap in 2012, before the completion of the concession period, following a backlash from the opposition and legal discrepancies in the summons issued.

Following that, ATES and Beta Tegap took up a case against Putrajaya in the Kuala Lumpur Regional Centre for Arbitration. The case is still ongoing.

“While the acquisition of Irat in particularly the AES operations is aimed at expanding the group’s revenue source, we are at best neutral on the latest acquisition, given the long gestation period for the full implementation of the AES project,” said HLIB Research.

Boustead (fundamental : 0.65; valuation: 1.8) shares rose to their intraday high of RM4.65 before paring down part of its gains to close at RM4.62 yesterday, still up two sen or 0.43%, giving it a market capitalisation of RM4.76 billion.

 

This article first appeared in The Edge Financial Daily, on March 10, 2015.

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