AFTER acquiring a 21% stake in NCB Holdings Bhd over the past seven months, MMC Corp Bhd may raise its interest further to 30%, bringing it one step closer to the mandatory general offer (MGO) threshold of 33%.
According to sources, the Tan Sri Syed Mokhtar Albukhary-controlled company has approached Kumpulan Wang Persaraan (KWAP) to acquire the latter’s 9.08% stake in NCB Holdings (fundamental: 2.05; valuation: 0.80).
While the acquisition itself would not trigger an MGO, the subsequent injection of Syed Mokhtar’s other port assets could.
It has long been speculated that Syed Mokhtar has plans to consolidate his various port assets in a listed vehicle and NCB Holdings is a good fit, with Northport (M) Bhd and haulier Kontena Nasional Bhd in its stable.
Recall that MMC Corp (fundamental: 0.40; valuation: 2.00), which wholly owns Johor Port Bhd, has a 70% stake in Tanjung Pelepas Sdn Bhd (PTP) and a 10.2% stake in Lekir Bulk Terminal Sdn Bhd in Lumut Port.
On top of that, Syed Mokhtar last year used his private vehicle, Seaport Terminal (Johore) Sdn Bhd, to take over the loss-making Penang Port Sdn Bhd from the government at an undisclosed price. Seaport Terminal has a 51.76% stake in MMC Corp.
Other logistics assets under MMC Corp include land transport company JP Logistics Sdn Bhd and Senai Airport Terminal Services Sdn Bhd.
Elsewhere, Syed Mokhtar’s DRB-Hicom Bhd (fundamental: 0.30; valuation 2.40) also controls Konsortium Logistik Bhd, a direct competitor of NCB Holdings’ Kontena Nasional.
“There is far more synergy to be unlocked by consolidating all his [Syed Mokhtar’s] assets under one vehicle, rather than the so-called strategic collaboration if MMC were to retain a non-controlling interest — both from the company’s perspective as well as from the investors’ perspective,” says one analyst.
Both KWAP and MMC Corp could not be reached for comment.
The question is, can MMC Corp undertake an MGO for NCB Holdings?
For starters, the group recently reduced its net gearing considerably from 2.0 times to 0.2 times with the listing of its energy unit, Malakoff Corp Bhd. This is due to the listing proceeds as well as the deconsolidation of Malakoff Corp Bhd from MMC Corp’s accounts that has removed about RM18 billion of debt from the latter’s balance sheet.
In contrast, NCB Holdings has a market capitalisation of RM1.62 billion.
Furthermore, MMC Corp has shown that it would be willing to pay a premium to gain a foothold in NCB Holdings. Recall that MMC Corp paid RM3 a share for a 15.73% stake from MISC Bhd on Nov 27 last year and RM3.45 a share for the 5.3% stake from the Port Klang Authority (PKA). That values the transactions at RM222 million and RM86.25 million respectively.
In contrast, NCB Holdings’ share price averaged less than RM2.50 apiece prior to MMC Corp’s acquisition of MISC’s stake last year.
As of last Friday, NCB Holdings’ share price closed at RM3.50, valuing the company at 76.38 times historical earnings but at 1.17 times net asset value. This is reflective of NCB Holdings’ relatively weak earnings performance, dragged down by loss-making Kontena Nasional.
Note that NCB Holdings also boasts very low net gearing of 0.1 times.
The main barrier for MMC Corp’s taking control of NCB Holdings would be the latter’s largest shareholder, Permodalan Nasional Bhd (PNB), which controls some 47.7% of NCB Holdings through its fund — Skim Amanah Saham Bumiputera (SASB).
It is not clear if PNB welcomes the injection of the assets, which could see MMC Corp taking control of NCB Holdings. This would be reminiscent of how Syed Mokhtar took control of MMC Corp in the first place. The tycoon began by acquiring a 19.9% stake in MMC Corp from PNB in July 2000. But after injecting assets into the company over several years, Syed Mokhtar now controls over 51.7% of MMC Corp through his vehicle, Seaport Terminal (Johore) Sdn Bhd. Today, PNB has a 20.28% stake in MMC Corp, through SASB.
Syed Mokhtar also used the same strategy to take control of DRB-Hicom Bhd by injecting Bank Muamalat into the company.
But to execute this strategy at NCB Holdings, Syed Mokhtar will need the support of the other shareholders. As a related-party transaction, MMC Corp would not be allowed to use its stake in NCB Holdings to vote for any proposed asset injection.
Hence, acquiring KWAP’s 9% stake would take MMC Corp one step closer to realising the consolidation of Syed Mokhtar’s port assets. However, it would still need to get PNB on board if the plan is to succeed.
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 June 29 - July 5, 2015.
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