This article first appeared in Capital, The Edge Malaysia Weekly, on March 7 - 13, 2016.

News that Indonesian tycoon Anthoni Salim has bought into CAB Cakaran Corp Bhd has cast the spotlight on the Penang-based poultry firm.

Last week, Plant Wealth Holdings Ltd — Salim’s investment vehicle — continued to mop up CAB shares on the open market, raising its shareholding to 12.4%. Plant Wealth is controlled by KMP Investments Pte Ltd, which in turn is 67%-owned by Salim, who is the chairman of Salim Group.

In addition to the 12.4% stake, Plant Wealth signed an agreement with CAB on Jan 18 for a proposed private placement of a 9.1% stake or 15.06 million shares at an issue price of RM2.07 per placement share or RM31.17 million. The private placement, which is priced at a premium over the current market price, is expected to be completed in the second quarter of 2016, pending the approval of shareholders at an extraordinary general meeting.

Year to date, CAB’s share price has risen 7.6% to RM1.69, for a market capitalisation of RM258.8 million. In fact, the stock has almost doubled from its low of 88 sen in late August last year. It climbed to an all-time high of RM1.87 on Feb 18.

Its warrant, CAB-WA, which was issued under a bonus issue of warrants, is considered a possible cheaper alternative to the mother share for investors. CAB-WA has a strike price of 55 sen and a one-to-one conversion rate.

The five-year warrant will expire on Feb 8, 2020.

CAB–WA is currently trading at a 3.6% discount to the mother share, which closed at RM1.69 last Wednesday. At zero premium, CAB–WA would theoretically be worth RM1.14. This would present a potential upside of 5.5% from the warrant’s closing price of RM1.08 last Wednesday.

It is interesting to note that in a non-rated Feb 22 report, MIDF Research opines that CAB’s shares could be fairly valued at RM2.29. That means that at zero premium, CAB–WA would theoretically be worth RM1.74, if its mother share hits the target price. This represents an upside of 61% for the warrant based on MIDF Research’s fair value.

MIDF Research analyst Ng Bei Shan highlights that the tie-up between the Salim Group and CAB is positive given that the Indonesian conglomerate runs more than 11,000 Indomaret convenience stores and operates more than 500 fried chicken outlets.

“Possible collaborations include the supply of poultry to the fried chicken outlets and selling value-added frozen food at the convenience chain. Besides, CAB could expand its fast food brand Kyros Kebab in Indonesia, riding Salim’s vast experience,” she says.

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