Tradewinds Corporation - Have I Told You Lately?

INVESTMENT IDEA

Make no mistake. Last week, Tan Sri Syed Mokhtar (“TSSM”) via his controlled companies - Perspective Lane (M) S/B, Kelana Ventures S/B and Seaport Terminal (Johore) S/B  - has proposed to privatise Tradewinds Corporation (“TWSCorp”) by  way of a selective capital reduction and repayment exercise (“SCR”). Recall that in our report dated 9th August 12, we had highlighted that TWSCorp could be a potential privatisation company  for TSSM judging from (i) the hightened M&A activities, (ii) its tight shareholding structure and (iii) the fact that TSSM’s acquisition trail was gaining momentum. For example, it was announced earlier that TSSM would take United Malayan Land and Aliran Ihsan Resources private at RM2.50/share (in mid-July12) and at RM1.84/share (in early-July12) respectively.

Under the proposed SCR, the entitled shareholders will receive a total capital repayment of RM347m or RM1.10/share. This offer is approximately 21% higher than our previously assigned fair value of RM0.91. While this offer is 36% lower than its book value (which is also its RNAV1) of RM1.73, the offer seems fair as compared with its previous 52-week high of RM0.955  before the offer was made. 

Time to take profit.  As such, we believe investors who have exposure in this stock should go through the entire SCR exercise or to take profit near the current market levels. This is because we believe the proposed SCR offers an opportunity to the entitled shareholders to realise their investments in TWSCorp at a reasonably good pricing in view of the stock’s  thinly traded nature. Besides, the major shareholders also do not intend to maintain the listing status of TWSCorp upon the completion of this deal.

Note 1:  The latest book value should reflect RNAV as TWSCorp has recently revalued some of its assets. In fact, it recorded LBT of RM242.1m in 2Q12 (vis-à-vis PBT of RM11.7m recorded in 2Q11) due to writeoff of hotel property and investment property, impairment loss on plant and equipment and provision foreclosure expenses in respect of the development of Tradewinds Centre. Excluding the impact on the development of Tradewinds Centre, TWSCorp would have recorded higher PBT of RM17.9m in 2Q12.

SWOT ANALYSIS

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

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

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

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

TECHNICALS

• Comments:  With the proposed privatisation offer at RM1.10, Tradewinds Corp broke out of its short termchannel resistance with a gap-up. The technical picture has turned very bullish although the upside potential likely remains capped at the RM1.10 offer. Support in the meantime looks to be developing at RM1.01.

REVISED NET ASSET VALUE (“RNAV”)

Total Revaluation Surplus (RM'm)  0.0

Book Value as at 30/06/2012 (RM'm)  1,913.58

Revised Net asset Value, RNAV (RM'm)  1,913.58

No. of Shares (m shares)  1,106.03

RNAV/share (RM)  1.73

Source: Kenanga Research

BUSINESS OVERVIEW

• Tradewinds Corporation’s businesses mainly focus on property development, hotels and resorts in populated areas  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 which 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