What’s Up? … dated Oct 2012
Tan Sri Vincent Tan is quietly building a presence in duty free chain operator Atlan, a move that could lead to a change of control in the company and possible a GO situation.
Tan’s BJCorp, which is already has a 9.3% stake in Atlan, is set to riase its holding to just over 25% with its plan to acquire a strategic stake in the company held by Cipta Sdn Bhd.
On paper, Berjaya’s enlarged shareholding in Atlan does not pose a direct threat to the duty free operator’s dominant shareholder, businessmen Datuk Sei Adam, who holds a 50.17% stake through his privately held vehicle Distinct Continent Sdn Bhd.
Atlan’s tight shareholder structure has run up against Bursa Malaysia’s listing rules, which stipulate that all public listed companies must have a minimum free float of 25%. The company’s free float stands at 16.32% which means that parties linked to the controlling shareholder must undertake a divestment exercise to ensure that enough shares are held by the general public.
It is not BJCorp’s problem and there is no reason for its to reduce its interest. The majority stake held by Adam and Distinct Continent will be diluted if Atlan were to meet the free float requirement.
BJCorp could exacerbate the free float challenge faced by Atlan by raising its stake.
Towards this end, BJCorp does no discount the possibility of raising its stake in Atlan and is prepared to undertake a MGO if it is obliged to.
BJCOrp would consider increasing its stake in Atlan if the opportunity arises in the future. In the event the acquisition of Atlan’s shares results in an obligation to undertake a general offer, BJCorp will comply.
Atlan’s management is exploring how the deal with the free float issue, and is looking at all available options. The company
The company would consider undertaking a placement if it is deemed necessary or at an appropriate time.
BJCorp has a direct interest of 8.12% stake and indirect stake of 16.9%, bringing its deemed interest in Atlan to 25.07%.
BJCorp is also seeking a board seat in Atlan after the completion of the transaction.
Atlan, which operates duty free complexes at all the entry and exit points of Malaysia, is a tightly held counter. Apart from Cipta Nirvana, the other notable shareholders are Seymour Pacific Ltd – a vehicle controlled by Datuk Choo Yeow Ming – with an 8.8% stake, and Datuk Ong Kar Beau with 7.09% stake.
The block that Cipta Nirvana has to deliver to BJcorp will have to come from the two shareholders or Adam Sani himself. There is nobody else with a sizeable block in Atlan.
Cash flow from Atlan is strong, which in turn has helped Atlan declare steady dividends despite its volatile earnings.
Atlan is also involved in property and in the manufacture of automotive parts. It has a building – Menara Atlan – in the KL, which is ripe for redevelopment.
Huat Lai Res
It may run into financial difficulties with its heavily geared balance sheet.
Huat Lai is the largest egg producer in the peninsula. Layer farms in Peninsula Malaysiahave been hit by a double whammy of oversupply and soaring feed costs, pushing producers into the red in 2012.
The company’s net borrowings have ballooned in 2011, rising 62% from rm243 million to rm394 million as at June 2012 which works out to a net gearing of two times. The group has cash and fixed deposits of rm20 million and has been loss making for the past three quarters.
Its weak financials are largely attributed to losses in its main business of poultry farming.
Off its balance sheet, Huat Lai has rm396 million in contingent liabilities related to outstanding guarantees to banks for credit facilities extended to its subsidiaries. Such guarantees have also increased substantially by 73% from rm229 million a year ago.
Overall, the group’s net cash outflow in the second quarter came up to rm13.34 million.
The increase in Huat Lai’s borrowings was also due to its acquistion of 360ha of freehold plantation land for mr61 million. Located in Melaka, the plantation is planted with mostly oil plan and some rubber and its purchase was financed by drawing down on an existing term loan.
The acquisition was completed in the middle of 2012.
It is worth nothing that Huat Lai is not the only egg farmer to suffer from low prices and high costs.
Other egg producers are Lay Hong, Teo Seng and QL Res.
What’s NEXT! … dated Oct 2012
It is expected to return to the black in the 3QFY2012 ended Sept 30, 2102 on the back of higher load factor, lower fuel costs and capacity cuts.
MAS saw better profits in 2QFY2012 with a core loss of rm160 million from losses of rm357 million in 1QFY2012. The improvement was due to a 10% to 12% capacity cut on loss making quotes, the disposal of old aircraft and efficiency gains.
MAS reported a net loss of rm517 million in first half of 2012 is expected to break even in second half of 2012.
The entry of Malindo Airways could also be good for MAS as it has helped the latter clear up its business strategy going forward.
Firstly the budget market will extremely challenging and saturated and therefore there is no reason for MAS to convert Firely into LCC. Secondly MAS needs to focus exclusively on premium passengers and can consider cutting capacity on non core flights. Thirdly it is inevitable that a price war between Airasia and Malindo Airwasy will ensue, especially on the trunk routes, MAS can proactively reduce its exposure on these hot routes and let the other airlines slug it out.