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This article first appeared in The Edge Malaysia Weekly on July 9, 2018 - July 15, 2018

VETERAN stockbroker Datuk Tony Tiah (picture) last week launched a mandatory general offer of 66 sen per share for TA Enterprise Bhd — a stockbroking firm he founded with his wife Alicia Tiah.

There is a simple reason for the MGO: the equity interest held by Tiah and parties acting in concert has climbed to 33.08%.

Market observers would have noticed that Tiah has been steadily accumulating shares in TA Enterprise on the open market. His direct interest in the company, which hit 30% or 513.56 million shares on Nov 29, 2013, rose further after his recent purchase of 14.33 million shares or a 0.84% stake.

The MGO has prompted speculation about Tiah’s plan for the company. It is well known in the investment community that the stockbroker is one of those people who raked it in on the local stock market in the go-go years of the 1990s. At the time, the Kuala Lumpur Stock Exchange was among the top five bourses in Asia.

But Tiah also had his fair share of negative publicity when the 1997/98 Asia financial crisis wreaked havoc across the region. And as they say, the rest is history.

In a recent announcement to Bursa Malaysia, TA says Tiah intends to maintain the listing status of the company. The fact that the offer price is barely 5% above the market price also makes it apparent that Tiah has no intention to take it private, at least not for now.

Nonetheless, a corporate adviser notes that the MGO could help Tiah consolidate his stake in TA.

In a separate announcement, TA says should Tiah and his family members manage to garner more than 50% interest in the company, the offer would become unconditional and trigger an obligation for Tiah to undertake another MGO for TA Global shares at 31.01 sen apiece.

Given the current cautious sentiment, some quarters opine that the MGO offers a timely exit.

“Market sentiment is bad now. Investors who fear that they won’t be able to liquidate their shares would be willing to take up the MGO. It is a good opportunity for entrepreneurs who see deep value in the stock to increase their stake.

“I believe it might not be that difficult for Tiah’s MGO to meet the 50%+1 requirement that will make the offer unconditional,” says a dealmaker.

In the past five years, TA’s share price performance has been far from impressive. The stock hit a high of 93.5 sen in July 2014 but it has been on a downward slope since then, falling to a low of 39.7 sen at the end of November in 2016.

It rebounded to 65.7 sen on May 25, 2017, but has remained within a range of 46.8 sen to 65.5 sen over the last 12 months.

The offer price of 66 sen apiece represents a 5.6% premium to the stock’s 12-month volume weighted average market price of 62.5 sen up to the date of notice of takeover. But it represents a steep discount to the company’s net tangible assets of RM1.48.

TA Enterprise’s prized possessions have to be its land bank and properties in TA Global. The group is among the landowners that own sizeable prime tracts in the KLCC vicinity. It also owns five-star hotels and land in Canada, Australia and China.

On the list of material properties held by the group is a 98,404 sq ft or 2.25-acre freehold commercial parcel in Kuala Lumpur that is held as inventory, according to the company’s 2017 annual report.

Of its 720 acres of land bank, 162 acres are in the planning and development stage, and have an estimated total gross development value (GDV) of RM14.2 billion.

Interestingly, the properties and land listed in the annual report are carried at net book value, indicating that they could be worth much more should the company’s auditor revalue the assets.

Then, there is the stockbroking business to reap value from. TA has one of the largest independent stockbroking houses in the country. In 2017, it contributed RM174.75 million or 16% to group revenue and RM35.96 million or 11.3% to group profit.

Another corporate adviser points out that should Tiah manage to raise his holding in TA to 51% or more, he would be able to tighten his grip on the company by increasing his stake to 75% without any obligation to make an MGO under the listing requirements.

His wife, who is TA’s managing director and CEO, had previously said that the stockbroking business is a cash cow for the group and is resilient despite the challenges the industry is facing.

In 2014, Affin Holdings Bhd acquired Hwang-DBS Investment Bhd for RM1.36 billion, representing 1.3 times book value.

In its first quarter ended March 31, 2018, TA Enterprise’s net profit grew to RM128.61 million, which is equivalent to 7.51 sen per share, from RM79.18 million or 4.62 sen per share a year ago.

The company attributes the higher profit before tax to contributions from its property investment, property development and hotel operations.

In its financial year ended Dec 31, 2017, TA’s group revenue amounted to RM1.05 billion, of which 63.5% or RM667.12 million was derived from its hotel operations. Investment holdings made up 12.2% of revenue at RM188.04 million.

The rest of the revenue came from the stockbroking, and credit and lending divisions, property investment and property development.

Nevertheless, in terms of group profit, the largest contributor was the investment holding division, which generated RM144.05 million or about 45.1% while the hotel operations division contributed RM140.52 million or 44%. Total net profit was RM271.77 million.

 

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