MULTI-INDUSTRY conglomerate Berjaya Corp Bhd, which is 46.52%-controlled by local tycoon Tan Sri Vincent Tan Chee Yioun, has been actively initiating corporate actions since early this year.
Over the past seven months, the Berjaya group of companies has been expanding businesses, divesting assets, merging and acquiring as well as exploring investment and collaboration opportunities.
For instance, Berjaya Corp, Tan’s flagship company, has exited Magni-Tech Industries Bhd, a Penang-based flexible plastic packaging product maker that diversified into the apparel business (see table).
Then there was a management buyout (MBO) at Berjaya Auto Bhd, the distributor of Mazda vehicles and spare parts in Malaysia and the Philippines. Some 10 members of the automotive firm’s senior management conceived the idea for an MBO when they noticed Berjaya Corp offloading shares in the company.
Berjaya Corp also divested substantial stakes in Berjaya Food Bhd, which operates chicken-based restaurant chain Kenny Rogers Roasters, gourmet coffee chain Starbucks and soy-related beverage producer Jollibean.
Meanwhile, Berjaya Assets Bhd, the developer of Berjaya Times Square, has proposed to buy the entire stake of Oriental Assemblers Sdn Bhd, which owns a car assembly plant at a 14.74-acre leasehold parcel in Johor Baru. It has also proposed to take full control of Megaquest Sdn Bhd, which operates number forecast lotteries in Sarawak.
Berjaya Assets has also appointed an exclusive marketing agent for the sale of a freehold parcel in Jalan Imbi. On a personal level, Tan has disposed of almost a 5% stake in Berjaya Assets.
As for 7-Eleven Malaysia Holdings Bhd, a 24-hour convenience store chain operator that is not parked under the umbrella of Berjaya Corp, it has opened its 2,000th store in the country and is currently reviving its franchise programme.
Another significant development is the group kicking off its nationwide computerised lottery operation in Vietnam via Berjaya Gia Thinh Investment Technology Joint Stock Co (Berjaya GTI). The estimated cost of the project is about US$210.58 million or RM919.18 million, to be incurred over a period of 18 years.
Berjaya GTI is a Vietnamese firm that is 51%-owned by Berjaya Lottery Vietnam Ltd, a Labuan-incorporated company. The latter is, in turn, 80%-owned by Berjaya Corp and 20%-owned by Berjaya Sports Toto Bhd.
According to government officials in Vietnam, the illegal lottery market is estimated to be worth US$9 billion or RM35.7 billion a year. With a population of about 90 million and gross domestic product growth of 6.5% last year, the interest and demand for lottery gaming in the country is expected to be significant with its vibrant economic environment.
Despite its diversified interests across various business sectors, such as hotels and resorts, property investment and development, gaming and lottery, food and beverage, and motor trading and distribution, Berjaya Corp seems to be off the radar screen of investors due to its complicated corporate structure.
With Berjaya Corp having a market capitalisation of RM1.64 billion, one can be forgiven for not knowing that it is in fact a penny stock, which by definition is priced below RM1. Year to date, the counter has fallen 6.6%. It closed at 35 sen last Friday.
Interestingly, the company has 49.07% equity interest in Berjaya Sports Toto, which has a larger market capitalisation of RM4.42 billion. This means that the value of its stake in Berjaya Sports Toto alone is already about RM2.16 billion — higher than its own market capitalisation.
In other words, shareholders of Berjaya Corp are very much stuck in a value trap, partly due to the conglomerate discount. It is currently trading at a price-to-book value of 0.23 times, based on its net assets per share of RM1.48.
Berjaya Corp also has substantial stakes in Berjaya Auto (17.55%), Berjaya Media Bhd (13.27%), Berjaya Food (42.97%), Berjaya Land Bhd (75.05%), Berjaya Assets (21.35%), Atlan Holdings Bhd (26.78%) and REDtone International Bhd (51.34%).
Despite its sprawling business empire, Berjaya Corp reported a net loss of RM174.69 million on revenue of RM9.01 billion in the financial year ended April 30, 2016. It is also worth noting that the company is in a net debt position of RM4.1 billion, translating into a net gearing of 0.59 times.
Corporate observers tell The Edge that the recent corporate actions by Berjaya Corp were mainly initiated to pare down its debt and, at the same time, grow the Vietnam lottery operations.
“He (Tan) is trying to put Berjaya Corp on a stable footing. The lottery business in Vietnam is likely to be a big money churner but before that, you need money to set up all the outlets. That’s why he is putting a bit more money into this area, so that he can recoup the investment in the next four to five years as the business grows,” says a company executive who has worked with Tan.
Meanwhile, a source close to Berjaya Corp says Tan is now consolidating the assets under the group to realign its businesses for the next phase of growth. Hence, he has to do more selling than buying.
“In the past few years, Tan Sri [Vincent Tan] bought a lot of companies. Now, he is selling down to de-gear because he doesn’t want to carry over more debt. It comes to a stage where you cannot keep buying assets without reducing the debt,” the source adds.
However, he highlights that over at Berjaya Assets, Tan is taking a different approach by acquiring companies because he wants the company to take full control of the acquirees’ cash flow.
“It makes good business sense to take up the remaining stake in Megaquest so that he gets to control the cash flow of the company. [With the acquisition], I think it would be easier to generate dividends for the shareholders of Berjaya Assets, in which he himself is also a major shareholder, so it’s good on a personal level too,” he says.
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