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Saturday, 3 January 2015

Minority Shareholders VS PJ Development (OLH) – David VS Goliath story (Posted on 4th Nov 2014)

PJ Development background: October 2014
P/E : 3.17 (Price 1.57 /Basic EPS 49.6) – Price closing as at 31/10/2014
P/BV : 0.62
NTA : 2.54
Dividend per Share : 0.05 (0.025 ex at 9 June and 0.025 ex at 2 Dec 2014 - annualized)
Dividend yield : 3.18% (Closed 1.57 at 31/10/2014) (payout ratio is 13.48%)
Current Ratio : 2.57 (12 months June 2014) - PASS
Quick Ratio : 2.06 (12 months June 2014) – PASS
Debts/Equity Ratio : 0.56(12 months June 2014) – PASS
OLH is doing a tri – party private agreement for OSK Holdings, OSK Property and PJD. Offering to buy PJD at 1.60 per share.
PJ Development NTA is 2.54, if we break it down and sell sum of parts we shall get 2.54 for every share we held. But the issue is, OLH is offering to buy at 1.60, which is 38% below NTA. Using our some our recommended financial ratios, we found that PJD is a good company but is a bad stock due to the offer.
OLH & Party Acting in Concern
OLH is a veteran stockbroker. Always do what he does best; to create more value for the company/himself. For our case study, Malaysia market average for taking over regardless of MGO or VGO for mid cap property related is around 6x~8x PE. He is buying from the minority at 50% market rate (PE 3.17).
But if you look at his point of view, PJD never traded above 1.60 (until early June 2014). If a party wish to buy his stake at RHB, of coz OLH will increase his grip at OSK Holdings to get more value from the shares swap. Plus, he is no longer playing an active role at the RHB entity. To surface the real value/profits of PJD to get a better swap for OSK Holding shares is an easy decision.
- Better grip on OSKH - 44% to 51%
- Higher OSKH shareholdings = higher value in RHBCap (will be more benefitted if CIMB/RHB/MBSB merged)
- To concentrate and build OSKH as a 1st tier developer (combination of PJD, OSKP, OSKH)
Just swapping the shares will automatically create a higher valuations/personal asset wealth in RHB Cap and much higher if RHB/CIMB/MBSB deal really kicks in. Difficult decision? Not at all.
We drill deeper for 2013 statements:
PJ Development background: October 2013
P/E : 7.23 (Price 0.94 /Basic EPS 13) – Price closing as at 1/7/2013
EPS : 0.13
Dividend per Share : 0.05 (no change compare to 2010, 2011, 2012, 2013)
Dividend yield : 5.3% (30 June 2013)
For the past 5 years, regardless PJD is making huge profits or flat, OLH still giving you 5 cents. As 2014, PJD did exceptionally well, STILL GIVING US 5 CENTS. We shall take out this ‘distorted 2014 year financial statement – put it as one off gain’.
2013 EPS = 0.13
2014 EPS = 0.49 (ignore)
2015 EPS = 0.156 (EPS 2013 + 20% EPS growth)
If you buy PJD now and to estimate 2015’s PE:
1.60 / 0.156 = PE 10.2, dividend yield 3.12%, if I am OLH, why I would want to pay you so high? I just want to surface PJD’s 2014 earnings just enough for me to swap for higher OSKH shares.
Total income 2013 = RM 61m vs total receivables 2013 = RM294m
Total income 2014 = RM 224m vs total receivables 2014 = RM 532m
See where is the numbers come from now?
Minority Shareholders
Our argument is quite solid. A company is offering to buy shares worth 2.54 from me for 1.60, PE at 3.5 and P/BV at 0.62. No need to ask, any pak cik/mak cik/ah kuai down the street out there will scold and turn this offer down.
PJD offer is a VGO and not MGO, there is no time frame from a VGO to be concluded. Why want to sell when you are being given a bad deal? If, OLH fails to get to get the shares, this merger will be off and potentially PJD price will return to its true value. If OLH able to get the majority shares, a MGO will kicks in, then only we shall evaluate again.
OLH did his best to create value for himself. Sometimes, we might have forgotten, this company belongs to him. Company’s offer is always to take care of the major shareholders. This is what OLH did. Not surprising.
‘Base on offer received, value it and react!’
1. If I have PJD shares:
Offer 1.60 to buy my 2.54 is not fair and not reasonable, REJECT the VGO offer.
Even if I bought much earlier from 0.5 to 1.60, why I want to sell cheap?
2. If I do not have PJD shares:
Buy. I will accumulate PJD shares at 1.60 +-.
VGO is not a major concern. OLH is likely not able to accumulate the majority shares for privatization.
3. If VGO fails, most likely price will recover. If VGO succeeded, you will end up holding OSKH shares which is first tier property stock! How bad can it go?
P/S: A veteran businessman once told me, OLH’s business sense is EXTREMELY SHARP! If you have the chance to meet OLH personally and shakes his hand, be extra careful, you might just get your HAND CUT AND BLEED!
Humble Pie,
Invest Coach

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