First Wing Tai, then MWE this year Suiwah

2017 it was Wing Tai Malaysia.
2018 MWE.
This year 2019, it is Suiwah.

Let me tell you they use the same formula i.e. little trading. Why little trading? It is because they have no intention to expose themselves to the shareholders. These are companies that treat the company as their private company anyway. Remember, where Jho Low comes from. What is the background of his family. Where his father, Larry Low was attached to as a director before? MWE. And coincidentally, all these companies have background from Penang.

They learned from each other.

I can bet you that Suiwah is buying from public very very cheap. High chance, it is going to use Mercury as advisor, or maybe M&A Securities. At the point of writing the Net Asset Value of Suiwah was RM3.30 per share and, it is offering RM2.80. It probably did not do revaluation for a long while.

Be careful on these type of companies. They are not keen to treat the shareholders well at all. At AGMs, they are hoping that the AGMs end fast so that we do not ask questions. They do not think of WIN - Win. The good ones in their business, they pass to their family business. For us investors, we do not mind if our win is smaller but at least they treat us a partners.

In their case, they are using us as like their gambling playground.

Note: I am NOT particularly referring the scenario towards Wing Tai, MWE or Suiwah but these are certainly true for some companies that are listed in Malaysia.

MWE's huge misrepresentations. Does it impact WCE?

I remember I wrote about MWE a year ago. For a company who would have an earlier valuation of its land at RM31 million and later to have the same land valued at RM155 million (5x multiple) on the same year, this is really serious. I did not know SC and Bursa can still allow this to happen although they have helped smaller shareholders to get MWE to ask for an alternative valuation.

In this episode, imagine your controlling and largest shareholder signed a deal to sell the land for RM55 million thinking that market value is RM31 million. And several months later another probably a more well known property valuer gave an entirely different view, i.e. the land is actually RM155 million. Is this because the management erred or is it really something else? Can we now trust valuer?

This is an article which appeared on The Edge Weekly 2 weeks ago where they published it online.

I would like to remind that the same MWE is a substantial (2nd largest) shareholder of WCE. If not because IJM is there, I would have had serious second thought on buying the company.

Another thing I would like to highlight is that the party MWE partners with is Pristine Primavera, a subsidiary of Newfields Group of Companies (a company which is related to Seow Lun Hoo).

Ironically, Newfields is one of the party which advised on the rights issue for WCE (formerly Keuro) - see below. Even if SC is to approve, there seems like a conflict of interest as Newfields advised on the dealings of WCE where MWE is a major shareholder, and later for Newfields to do a huge business deal with MWE.

Another very fishy deal involving MWE happened 13 months ago. Tan Sri Surin Upatkoon proposed to do a privatisation of MWE at RM1.70, only for him to do a U-turn a month later. See below. This is almost like playing around with shareholders and he does not care at all.

On another related matter, remember Mamee's shareholders who are the 3rd largest shareholder in WCE - see who advised them for the group's delisting back in 2011/2012. They are all potentially inter-related.

In these episodes, there are 2 things I would like to call: really questioning the 2 professional companies Cheston Internaional KL Sdn Bhd (the valuer for the land in PJ and Newfields Advisors Sdn Bhd, the advisor for the WCE, Mamee)

MWE's land sale: Is the price right?

MWE just announced a sale of several combined piece of land (making up a golf course, I presume) together with the golf course management company at total value of RM70.1 million (RM54.93 million + RM15.17 million - owing for the gold course). The total land size is 481,925 sq mtr or 5,187,397 sq ft., hence making the valuation for the price of the leasehold land at RM13.51/sq ft.

Where is the land? As below, it is near Denai Alam, Sunway Kayangan and Cahaya SPK.

Monterez Golf and Country Club which is possibly the property which MWE sold

My question is, shouldn't the land be worth more as adjacent land around the area are worth around RM150 nowadays.

I am not good at looking the difference between a golf course and a commercial or residential property, but it looks weird that there is such a huge difference.

Food for thought: A look at MWE

I know this is a hugely uninteresting stock, but there is a reason for me to look at it. It owns about 25% of Keuro where I already have a decent exposure. I would also like to know why it has sold a business where it has been earning between RM20-25 million a year and part of that proceeds have been used to buy Keuro. MWE spent around RM280-RM290 million to have a hold of 25% of Keuro. They purchased the substantial stake from Chan Ah Chye at RM1.34 per share and later picked up the rights at RM1.08 per share. There could be a reason it sold controlling stake of a business to own an associate stake of another business. Usually business people do not do that. And I am very sure they are many times smarter than me.

Accounting Treatment

The company has taken equity accounting method for its investment in Keuro. Basically MWE has taken the following treatment for its investments.

Latest financial report

Now we know that it has borrowed some money to buy the 25% stake including the rights. What does that mean? Its borrowings is in the form of revolving credit and the borrowing costs seems low - around 5%. The dividend income from Magnum alone (see below) can cover for the interest to be paid from the borrowings.

From MWE's 3Q14 financial report. The added on loans is after Keuro's rights

Balance sheet wise it is definitely sound. It has a Net Asset Value of around RM2.88 per share against its share price today of RM1.47. Generally, I do not think that its business is much of a significant although if one is to read its annual report, nothing tells that. (This is the reason why reading Chairman's statement is NOT telling much). The value of the company is in the investments, not subsidiaries. However, in the Annual Report's statement by the chairman, he was dwelling on subsidiaries business which I do not get excited from. Nothing much is mentioned on the investments.

The three largest shareholdings are investments (investments in associates and Other Investments - largely Keuro (around RM270 million in value including Keuro-WE), Magnum and MPHB Capital which can be read through below.

Magnum's substantial shareholding with MWE ownerships worth around RM181.5 million

MPHB Capital's substantial shareholding. MWE's shareholding value is around RM61.5 million

Other than that, it owns textiles business, the remains of the electronics business after selling to General Lighting Co. (Note that Carlyle has sold the business after 2 years holding it to Philips at a profit of course), some properties and a plantation in Kelantan (MWE tried to sell it but was rejected by the state government).

Anyhow, I can see it interesting from this findings...it is trading at 50% of its NAV. Would you buy it? There are many things to think through though like dividends, share buyback etc.

Happy holidays to all the fellow bloggers and readers.

Will IJM continue to shortchange Kumpulan Europlus' shareholders?

I can tell you I have been monitoring and spending too much time on this. Who is Kumpulan Euro ("Keuro") in the first place - not too long ago (that is more than 10 years), it was Larut, and of course the controlling shareholder is whom many depressed house buyers in Klang Valley would know - Tan Sri Chan Ah Chye. Where many housing projects were (and are) doing well, Keuro has failed because in many instances it failed to deliver.

(Note that I am not writing this on behalf of Chan Ah Chye but for the minority shareholders. The shortchanging, I feel is not only onto the largest shareholder but all the other minority shareholders.)

Keuro does not have the cashflow and namesake (Keuro and Talam's brand are worthless and they have been hiding under IJM brand) to deliver. What Keuro has not failed though is the assets and its accumulation during the 1990s and 2000s.

In the balance sheet of Keuro, it has three large assets:

1. 30% of Talam (or Trinity) - you can check the assets, despite it being a penny stock (at RM0.055), its Net Asset (before revision) is easily worth RM0.14 per share. I would not know how much if it is revalued as it has not been revalued for a long time;
2. then the Rimbayu (or formerly Canal City Construction Sdn Bhd). This is a large piece of 1870 acres of leasehold land in south Klang Valley which it effectively owns 35% (the other 35% being IJM Land). The first phase launch of some 500 units of landed houses (priced between RM550k to RM600k) was very well received with many more in the waiting list (and there is no DIBS or 5/95 plan in the project). Upon completion, this area is supposed to have 10,000 households with RM11 billion in Gross Development Value. To make the shareholders of Keuro excited, an adjacent land of 1,200 acres (which is also called Canal City) was sold to Tropicana Group by Selangor state government for RM1.3 billion recently, hence effectively valuing the land held by Rimbayu at some RM2 billion. How much Keuro had to pay for it back in 2004? Nothing. So you probably would not see anything in the balance sheet except for some accumulation of expenses for the project delivery. And since it is a JV with IJM, it is equity accounting the project (not consolidation, hence you are not seeing the effect from its project sales). At my soft guess, the land would have worth easily more than RM700 million to Keuro. Can you imagine, with the land being free, how much can the project bring in terms of profitability to the project owner? And best of all, in the balance sheet it shows nothing until revenue recognition;
3. now of course the most prized (with much fanfare) is the West Coast Expressway (WCE). Keuro has 80% of WCE and it has been awarded a 50 years concession by the government. If we are not so sure of what it is, WCE is almost parallel to the North-South Highway owned by PLUS linking Banting to Taiping (tolled road around 233 km). Hence, you can see it is the heavier traffic part of the linkage from north to south. How much would the concession be worth upon completion, that's the question? Since, there are very little details about the project, except for it being given a soft loan of RM2.24 billion of 4% interest by the government, its value may not be known to a lay shareholder like you and I. Much of the details are unknown, but what is announced is that since it is a public-private initiative, upon it reaching certain revenue threshold, 70% of the revenue will be used to pay off the government loan, until the loan is fully paid off. Upon that, the revenue sharing will be 30%:70% between WCE and government. On the valuation, just a note - PLUS (of which 84% of the revenue derived from North-South Highway) was sold to UEM and EPF for RM23 billion (tagged along with RM11 billion debt) in 2011 - hence effectively valuing PLUS at RM34 billion at enterprise value at that point of time. How much would you think a 233km concession along North-South be worth upon completion then? It is noteworthy that PLUS' North-South Highway is 840 km, but it also has portion which has lower traffic, i.e. the Penang - Bukit Kayu Hitam stretch.

With that 3 assets, how much would you think Keuro is worth? To me that is a tough question as one of its larger shareholder, IJM which also owns 23.8% of Keuro, has purchased assets of Keuro at amazingly low valuation. One should note though the partnership with IJM also comes with the good part as well, i.e. the delivery partner and the confidence that is associated with Keuro and Talam in the ability to complete projects. IJM has 20% of WCE in itself and through its 22% stake in Keuro, it is IJM's interest to keep the concession going as well as kickstarting Rimbayu and other land assets held through Talam. Why? For IJM, it is killing 2 birds with one stone, as besides owning the shares at low price, through Keuro, it will have continuous projects from Talam and Keuro's rich assets where the WCE project alone is going to be worth RM5.5 billion in terms of project value. Surely, IJM being the project owner and construction company would get a big chunk.

To kick start the WCE concession though, Keuro needs RM200 million as highlighted by the board yesterday. That is something which Keuro does not have, and has always been a problem for the company. If I am IJM, I would of course continue to retain that, as a hungry and weak partner will always needed me to catch and feed it with fish, rather than it catching the fish itself.

The value for Keuro is not in its financials. It is highly geared with little revenue to show.

Now, how did IJM went into Keuro in the first place? Back in 2007, when Keuro needed help, IJM took a 25% stake at RM0.28 per share - now that share is worth RM1.28 or 23.85% of Keuro's RM666 million market cap (and the value could probably be much more once the projects kickstart, in which case some like the Rimbayu project had). During the period until now, IJM has become a delivery partner to many of Keuro and Talam's projects and in the process got to buy an additional 10% of the Canal City Construction (from Keuro) at an amazingly low price of RM2 million in 2008 and 20% of WCE from a partner of Keuro (actually partly held through Chan Ah Chye's brother) at RM6.75 million. The RM2 million for 10% of Canal City was basically valuing the land at RM20 million. What is it worth now?

Hence, while Keuro benefited out of this (sort of partly rescued), the main beneficiary was IJM. Keuro remained to have poor liquidity. As said earlier, the WCE project will need RM200 million of capital injection by September with 3 months extension option. It needed to raise cash fast and as said, one of the options is to sell part of the Rimbayu project. I can only guess that the buyer is IJM as by doing that, it would be able to consolidate the financials from the Rimbayu project, and what more to do it off a hungry and weak partner at a low price? (Note that under IFRS10, IJM should be able to consolidate the Rimbayu project as at now as it seems to have full control over the project) 

If I am a shareholder, I would prefer the equity fund raising option for Keuro but I just could not understand why it took them so long to raise the needed RM200 million after 7 months since the concession was signed in January 2013. Probably IJM was the hyena, that was just waiting to have more flesh out of them...perhaps? Why not let it be hungry as long as it is still alive! I am just wondering, after all these while why the need to sell the assets of Rimbayu as one of the options...

I am sure given the proper explanation and the partners that are involved, raising the RM200 million equity would not be that difficult, but the work (as I see it) is not planned properly. 

In previous times, any fund raising would just dilute the shareholders (which is the case why the fund raising has been dragged, as they may not want it or may not have the funds for it), but new shareholders with more firepower would allow rights issue to be done and Keuro (and Talam for that matter) needs to do rights issue rather than private placements. Hard land assets is worthless without the funds to deliver - that's the POINT. UNLESS OF COURSE YOU SELL THE ASSETS.

The latest news however, a probable stronger shareholder in town (MWE) which has some RM350 million cash in its coffer would probably have a bigger voice once the shares from Chan Ah Chye changed hands and perhaps IJM may not just bully the very weak Keuro anymore, as we have witnessed in the past. It will then has a stronger shareholder to content with, and that's hopefully better for the minorities. What is more important though is making sure of the money needed for the WCE project is resolved for now, and Keuro is running out of time to get it done.

To be fair to IJM, it has forwarded some RM200 million interest-bearing loan for kickstarting the Rimbayu project. Without that, it can't even commence.

Disclaimer: These are entirely my opinion and observation and it may not be fully accurate.