Move to take Selangor Prop private seen timely
But grumblings on offer price are beginning to emerge
GIVEN the current glut in the local property market, the recent move to take Selangor Properties Bhd (SPB) private can be viewed as a wise strategy by its major shareholder, Kayin Holdings Sdn Bhd.
Kayin Holdings, which is the investment vehicle of the Wen family, has proposed to privatise SPB group via a selective capital reduction and repayment exercise at RM5.70 per share.
Kayin Holdings owns a 68.23% stake in SPB.
This translates to a total payout of RM622.3mil, and the offer price represents a 40% premium to SPB’s traded price of RM4.06 on Wednesday.
Analysts say the corporate move is timely, given the company’s valuation, which is higher than the traded share price. However, it has met with some objections. Taking SPB’s wealth of assets into account, the offer price seems to fall short of expectations.
According to SPB’s annual report, the total book value of properties held by the group in Malaysia stands at RM1.24bil, as of Oct 31, 2017.
Over in Australia, SPB owns two properties in Claremont, with a cumulative book value of RM190.4mil.
Additionally, the group has cash and cash equivalents amounting to RM264.19mil as of end-July this year.
One of SPB’s top five shareholders, Singapore-based Pangolin Investment Management Pte Ltd, which owns a 1.24% stake, deems the offer as “unfair”.
Pangolin Investment director James Hay tells StarBizWeek that the offer price is still a 20.7% discount to SPB’s book value as of July 31, 2018, of RM7.19 per share and a 53.4% discount to the fund’s realisable net asset value (RNAV) estimate of RM12.22 per share.
“SPB is the largest landowner in Damansara Heights with 30.7 acres of undeveloped land.
“Sitting on strong net cash of RM711.5mil as of July 31, 2018, they can surely pay more.
“The offer price is too low and we intend to vote against it,” he says.
As of Friday, SPB shares surged 30% at RM5.27 with 356,400 shares changing hands.
Its market capitalisation stood at RM1.81bil and the stock was traded at a price-earnings multiple of 92.95 times.
Hay adds that Pangolin Investments has owned SPB since 2014, and the fund does not mind continuing to own SPB for another four years.
“The value is accreting all the time, with Semantan MRT station and the upcoming Pavilion Damansara Heights.
“They (SPB) can just sit on it and it will happen.
“Bukit Damansara is the only bit of KL that looks like Singapore - it is unique,” says Hay.
Just as Pavilion Bukit Bintang adding value to the surrounding developments, Pavilion Damansara Heights is expected to generate the same effect likewise.
In a letter to SPB’s board of directors on Thursday, Kayin Holdings says the decision to privatise SPB shall provide the group with greater flexibility to manage and develop its businesses and undertake corporate exercises which may otherwise require lengthy shareholder and regulatory approvals.
Furthermore, a glut in the property market is expected to limit the group’s development activities over the near to medium term.
“The number of unsold high-rise residential properties, combined with the oversupply of commercial properties and new developments such as Damansara City and Pavilion Damansara Heights around SPB’s existing properties, would not only drive vacancy rates high and depress effective rental rates of its existing investment properties, but will also limit the group’s development activities, especially in the group’s land bank in Damansara Heights, in the short to medium term,” says Kayin.
For the nine-month period of the financial year ending Oct 31, 2018 (FY18), SPB registered a net loss of RM1.1mil, on the back of a revenue of RM106.77mil.
Net profit for FY17 amounted to RM92.6mil, on a revenue of RM140.17mil.
SPB is regarded as a distinguished property developer famed for its role as the master developer of the prestigious suburb, Damansara Heights.
The group’s roots can be traced back to 1963, when it was founded by the late husband and wife duo Tan Sri Dr Wen Tien Kuangin and Puan Sri Chook Yew Chong Wen.
The group acquired about 1,000 acres of rubber estate land in Damansara Heights in the 1960s.
The matriarch of the Wen family took helm of the company following the demise of her husband in 2000.
Chook served as SPB managing director for 37 years, and was later appointed executive chairman in 2000 when her son, Wen Chiu Chi, took over the role of managing director.
In December 2017, Chook retired at the age of 95, handing over SPB’s reins to Chiu Chi.
Save for 62-year-old Chiu Chi, who is the third of four children in the family, the other siblings have little interest in the family business.
Chook was the driving force of the group and was very much involved in the management of SPB.
After the matriarch’s retirement and her passing last month, investors and shareholders were generally unsure of Chiu Chi’s plans for SPB going forward.
SPB laid low for a few decades, only resurfacing in 2014 when it sold 6.34 acres of its freehold commercial land in Pusat Bandar Damansara to a company linked to Malton Bhd’s Tan Sri Desmond Lim Siew Choon.
The parcel of land had a price tag of RM450mil, or RM1,628 per sq ft, which set a new benchmark in the area.
Nine office blocks used to sit on this parcel of land, which has since been demolished to make way for the construction of Pavilion Damansara Heights.
SPB made a come back to the property development scene when it launched condominium project AIRA Residences in 2016.