KUALA LUMPUR: Shopping for an acquisition is still on the cards for CI Holdings Bhd (CIH) even though the company will return the bulk of its gains from the disposal of Permanis Sdn Bhd to shareholders, said head of corporate finance, strategy and development Syed Khalil Syed Ibrahim.
“We will retain some of the funds to acquire a new core business, though we are very prudent about this and we want to find good investment decisions,” Syed Khalil told The Edge Financial Daily.
About 88% or RM724.2 million of the RM820 million paid by Asahi Group Holdings Ltd for Permanis will be distributed back to shareholders, the company said in an announcement to Bursa Malaysia last Thursday. Shareholders of CIH will see a gain of RM5.10 per share.
News of this sent the stock soaring to an intra-day high last Friday of RM5.30 — its highest level since June 2000. It eased to end the day at RM5.22, up 6% from its close last Thursday. Trading volume jumped 510% to 1.99 million shares last Friday from 326,200 shares the day before.
The RM724.2 million is nearly a third more than the minimum RM568 million, or RM4 per share, which was mentioned by the company previously.
“We wanted more time to see the deals that were likely to materialise in the short term, but we could not find a suitable business and we don’t want to rush into anything,” said Syed Khalil.
He declined to comment further on which industries the company is exploring specifically. Though CIH has yet to narrow its choice for its next core business to any specific sector, it has excluded the oil and gas, and property sectors due to lack of expertise.”
The company has proposed to distribute RM653.2 million through a special cash dividend of RM4.60 per share. It also proposed a payout of RM71 million or 50 sen per share to shareholders in the company’s records.
Syed Khalil noted that the decision to pay out RM724.2 million was also to avoid CIH being placed under Practice Note 16 (PN16) status by Bursa Malaysia, in which a listed company has cash or short-term investments making up at least 70% of its total assets.
The company would then be asked to submit a regularisation plan to be approved and implemented within a certain timeframe, failing which its shares could be suspended and subsequent delisted.
Syed Khalil said distributing the bulk of the gains is a move to reassure shareholders.
“Shareholders prefer that we return the money to them as there is less uncertainty (on their end) and it is better than us holding the money. We also want to maintain their support so the next time we enter a deal they are more likely to follow us. This is a long-term approach for us,” he said.
Following the distribution to shareholders, the remaining RM95.8 million will be retained as cash equivalents or directed towards short-term investments in reducing the company’s net debt position to RM13.8 million from RM109.6 million.
The amount may be used to fund future purchases.
“Depending on potential future acquisitions, we may need to raise additional capital through equity or debt,” he said.
A market observer said reducing the size of the company’s cash pile will result in a lower risk of bad or loss-making acquisitions being made.
“In the long run, it will benefit CIH,” he said.
An analyst from OSK Research said the company’s track record with Permanis proved that it is capable of growing a small company purchased with a minimal investment.
Permanis was acquired in 2004 for RM7.2 million and sold at 11.4 times its original price tag, while its revenue grew from RM248.1 million in FY05 to RM479.9 million in FY10.
However, the analyst encourages investors to wait and observe CIH’s next move.
“It might be risky to invest now. We recommend investors see what kind of new business CIH acquires. Moreover, it will take time for CIH to realise solid earnings from the new venture,” said the analyst.
She added that the company’s remaining core business has been volatile in its earnings.
CIH subsidiary, Doe Holdings Sdn Bhd, which manufactures taps and sanitaryware, has seen revenue fall in the three quarters leading up to June 30.
For its 4QFY11, it generated RM9.91 million in turnover.
This was a flat performance year-on-year and a decline of 7.3% from the previous quarter.
OSK has downgraded the stock to a “neutral” and lowered its fair value to RM5.10 from RM5.66 previously.
In an announcement to Bursa Malaysia last Friday, CIH announced the resignation of Erwin Selvarajah as CEO of Permanis, effective Nov 11. It noted that Selvarajah’s resignation was subsequent to the recent change in shareholding of Permanis and its group of companies, from CIH to Asahi.
CIH announced that it had received the full proceeds from the disposal last Friday, marking the completion of the exercise.
It added that it had made an application to Bursa seeking a waiver from the classification of the affected listed issuer under PN 16.
This article appeared in The Edge Financial Daily, November 14, 2011.
“We will retain some of the funds to acquire a new core business, though we are very prudent about this and we want to find good investment decisions,” Syed Khalil told The Edge Financial Daily.
About 88% or RM724.2 million of the RM820 million paid by Asahi Group Holdings Ltd for Permanis will be distributed back to shareholders, the company said in an announcement to Bursa Malaysia last Thursday. Shareholders of CIH will see a gain of RM5.10 per share.
News of this sent the stock soaring to an intra-day high last Friday of RM5.30 — its highest level since June 2000. It eased to end the day at RM5.22, up 6% from its close last Thursday. Trading volume jumped 510% to 1.99 million shares last Friday from 326,200 shares the day before.
The RM724.2 million is nearly a third more than the minimum RM568 million, or RM4 per share, which was mentioned by the company previously.
“We wanted more time to see the deals that were likely to materialise in the short term, but we could not find a suitable business and we don’t want to rush into anything,” said Syed Khalil.
He declined to comment further on which industries the company is exploring specifically. Though CIH has yet to narrow its choice for its next core business to any specific sector, it has excluded the oil and gas, and property sectors due to lack of expertise.”
The company has proposed to distribute RM653.2 million through a special cash dividend of RM4.60 per share. It also proposed a payout of RM71 million or 50 sen per share to shareholders in the company’s records.
Syed Khalil noted that the decision to pay out RM724.2 million was also to avoid CIH being placed under Practice Note 16 (PN16) status by Bursa Malaysia, in which a listed company has cash or short-term investments making up at least 70% of its total assets.
The company would then be asked to submit a regularisation plan to be approved and implemented within a certain timeframe, failing which its shares could be suspended and subsequent delisted.
Syed Khalil said distributing the bulk of the gains is a move to reassure shareholders.
“Shareholders prefer that we return the money to them as there is less uncertainty (on their end) and it is better than us holding the money. We also want to maintain their support so the next time we enter a deal they are more likely to follow us. This is a long-term approach for us,” he said.
Following the distribution to shareholders, the remaining RM95.8 million will be retained as cash equivalents or directed towards short-term investments in reducing the company’s net debt position to RM13.8 million from RM109.6 million.
The amount may be used to fund future purchases.
“Depending on potential future acquisitions, we may need to raise additional capital through equity or debt,” he said.
A market observer said reducing the size of the company’s cash pile will result in a lower risk of bad or loss-making acquisitions being made.
“In the long run, it will benefit CIH,” he said.
An analyst from OSK Research said the company’s track record with Permanis proved that it is capable of growing a small company purchased with a minimal investment.
Permanis was acquired in 2004 for RM7.2 million and sold at 11.4 times its original price tag, while its revenue grew from RM248.1 million in FY05 to RM479.9 million in FY10.
However, the analyst encourages investors to wait and observe CIH’s next move.
“It might be risky to invest now. We recommend investors see what kind of new business CIH acquires. Moreover, it will take time for CIH to realise solid earnings from the new venture,” said the analyst.
She added that the company’s remaining core business has been volatile in its earnings.
CIH subsidiary, Doe Holdings Sdn Bhd, which manufactures taps and sanitaryware, has seen revenue fall in the three quarters leading up to June 30.
For its 4QFY11, it generated RM9.91 million in turnover.
This was a flat performance year-on-year and a decline of 7.3% from the previous quarter.
OSK has downgraded the stock to a “neutral” and lowered its fair value to RM5.10 from RM5.66 previously.
In an announcement to Bursa Malaysia last Friday, CIH announced the resignation of Erwin Selvarajah as CEO of Permanis, effective Nov 11. It noted that Selvarajah’s resignation was subsequent to the recent change in shareholding of Permanis and its group of companies, from CIH to Asahi.
CIH announced that it had received the full proceeds from the disposal last Friday, marking the completion of the exercise.
It added that it had made an application to Bursa seeking a waiver from the classification of the affected listed issuer under PN 16.
This article appeared in The Edge Financial Daily, November 14, 2011.
