KUALA LUMPUR: Tenaga Nasional Bhd (TNB) is likely to end up with a controlling stake in Integrax Bhd without having to revise upwards its offer price for the port operator, said analysts.
Last Monday, TNB made a general offer of RM2.75 per share for the remaining 77.88% stake it does not own in Integrax. The offer price was already a premium of 21.7% to the closing price of Integrax (fundamental: 1.65; valuation: 0.6) prior to the takeover announcement.
But Integrax’s single largest shareholder Amin Halim Rasip, who holds a 22.81% stake, last Friday rejected TNB’s bid, stating that the takeover was unfair and unreasonable.
Perak Corp Bhd (fundamental: 1.90; valuation: 1.2) holds another 15.74% in Integrax, while TNB itself owns 22.12% of the port operator.
“TNB could make a better offer but the question is how much would be enough? Even if TNB does not make a better offer, we think that it would still end up with a controlling stake in Integrax,” said CIMB Research in a note yesterday.
CIMB Research analyst Faisal Syed Ahmad said TNB need not raise its offer price to convince the shareholders of Integrax (Amin in particular) to part with the company.
“The current offer price values Integrax at 20 times historical price-to-earnings (P/E), which is a bit steep, as we have highlighted before. Valuations aside, Amin’s reluctance may be prompted by his aim of securing a deal from Vale International SA,” he added.
If this is the case, Amin may not sell at any price, Faisal said. And, therefore, TNB (fundamental: 1.3; valuation: 1) upping its offer would not make a difference, he pointed out.
“If TNB does make a better offer, we would be neutral, as we believe that TNB is very keen to secure control of Integrax for strategic purposes.
“On the flip side, if TNB decides to maintain its current offer, it could still end up with 60% of Integrax (excluding Amin and Perak Corp), which would give it more control over the company than the other parties,” said CIMB Research.
It added that this majority stake may be enough for TNB to steer the direction of Integrax in order to meet its own strategic targets.
The current takeover offer would cost TNB RM644.23 million, of which several research houses said was already at a decent premium and advised minority shareholders to take the offer.
It has been reported that TNB wants Integrax to focus on handling the coal shipment for its power plants near the latter’s Lekir Bulk Terminal (LBT), while Amin intends to broaden its client base.
A minority shareholder of Integrax said the offer price, which is based solely on net asset per share or discounted cash flow valuation based on existing contracts, “does not do justice to the minority shareholders”.
“Integrax ought to be valued on a more holistic approach on the basis of revised net asset value taking into consideration the replacement cost of its facilities. Even the unused stockyard is worth a lot of money,” the minority shareholder told The Edge Financial Daily, adding that there’s also RM154.6 million cash reserves sitting in Integrax, which has negligible debt.
“And then there’s the M5 coal handling services contract (with TNB) which should be signed soon. Who knows with the delays in completion of the two coal-fired power plants, 1Malaysia Development Bhd’s 2,000mw Jimah power plant and Tanjung Bin’s power plant expansion, TNB’s Janamanjung power plant (in Perak) may need to plant up more capacity to pick up the slack,” the minority shareholder added.
Integrax owns two terminals with an 80% stake in LBT and 50% less one share in Lumut Maritime Terminal. TNB is Integrax’s only customer at LBT (90% to 95% utilisation rate), which facilitates the import of coal for its power plants.
Nevertheless, another analyst said TNB does not have to pay more than it is currently offering as the amount is already at a premium. More so, TNB is the only customer of Integrax in LBT.
If it fails to gain control of Integrax, TNB can always build its own port in the same vicinity, without relying on the former, said the analyst.
“Tenaga could use the RM644.23 million to build its own port instead,” the analyst said.
Shares of Integrax yesterday closed 1 sen or 0.36% lower at RM2.74, while Perak Corp shares also closed 3 sen or 1.05% lower at RM2.82. TNB’s share price settled 12 sen or 0.83% higher at RM14.50.
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This article first appeared in The Edge Financial Daily, on January 20, 2015.