Tradewinds Corporation - Potential privatisation target

INVESTMENT IDEA

Recall that Tan Sri Syed Mokhtar (“TSSM”) and a group of investors was taking United Malayan Land (“UMLAND”, NOT RATED) private at RM2.50 per share in mid-July 12.  In earlyJuly12, TSSM, via MMC Corporation (“MMC”, OP, TP: RM3.11), offered to take Aliran Ihsan Resources private via  a selective capital reduction (“SCR”) exercise in the company.  The proposed SCR, AIRB will cancel 181.1m shares comprising of 82.7m shares held by MMC and 98.4m shares held by minorities. MMC is expected to waive its entitlement of RM82.7m (RM1.00 per share). To sum it, the SCR is valued at RM1.84 per share from the minorities’ perspective. With these two privatisation deals, it seems that TSSM’s acquisition trail is gaining momentum and hence has prompted some market observers and investors to believe that Tradewinds Corporation (“TWSCORP” NOT RATED ) could be the next target given its tight shareholding structure. Based on Bloomberg data, TSSM owns 71.48% of TWSCORP. 

Besides, due to the recent trend of the “REIT”-ing” of investment properties such as IGB Corporation or Krisassets Holdings, we also do not rule out such a possibility. This view is also further reinforced by the fact that TWSCORP has just revalued its investment properties last year. Based on financial consideration, the stock could also be deeply undervalued. We estimate that the RNAV for TWSCORP should be pegged at RM2.01/share (see RNAV), 172% higher than its current share price. Should we assign the highest discount factor to RNAV for property stocks under our coverage of 55%, TWSCORP would still be valued at RM0.91/share, implying a still 23% upside.

SWOT ANALYSIS

• Strength:  Quality assets as its properties and hotels are in prime areas and with high re-development potential.

• Weaknesses:  Earnings is expected to be disrupted periodically by reconstruction of certain assets. Inconsistent in earnings and dividend payouts.

• Opportunities:  Properties/hotels accessibility to MRT. Uptrend in Malaysian tourism.

• Threats: Deterioration in macro economy due to external uncertainties.

TECHNICALS

• Resistance: RM0.80 (R1), RM0.84 (R2), RM0.86 (R3)

• Support: RM0.72 (S1), RM0.71 (S2), RM0.68 (S3)

• Views: Bullish in the ST & MT, Neutral in the LT.

• Comments:  Price action has broken above the MT Down Trend supported by rising MACD while RSI is neutral. Look to enter in the RM0.72-RM0.75 region.

BUSINESS OVERVIEW

• Tradewinds Corporation, businesses mainly focus on  property development, hotels and resorts in populated area such as Klang Valley, Langkawi and Johor Bahru.

• Portfolio of hotels and resorts across the country ranging from 4 to 5 stars including brands like Crowne Plaza Mutiara, Hilton, Meritus and The Danna Resort. 

• Provides property management services for both its  developments, Menara Tun Razak and Kompleks Antarabangsa.

BUSINESS SEGMENTS

• Property – Investment and development includes Menara Tun Razak in the Central Business District and Kompleks Antarabangsa in the Golden Triangle.

• Hotel – Owner of 9 hotels and resorts including Crowne Plaza Mutiara Kuala Lumpur, Batang Ai Longhouse Resort, Hilton Kuching and Petaling Jaya, Hotel Istana Kuala Lumpur, Meritus Pelangi Beach Resort & Spa, The Danna Langkawi, Mutiara Johor Bahru, Mutiara Taman Negara and Mutiara Burau Bay Beach Resort.

• Other business segments include insurance broking, security management, travel services, premium goods and safety goods which contributes to the synergy of the company.

Source: Kenanga