Wednesday, July 10, 2013

What is the OSK family up to?

Firstly, do not try to cross-sword with a stockbroker. Especially the one who holds the long samurai sword while we (minorities) are just holding pen-knife. Right now, the OSK family is holding the sword and minority shareholders just do not know what the controlling shareholder is going to do. Just recently, the family triggered a General Offer, increasing their stake in OSK to 36.72%, which is above the GO threshold of 33%.

This force them to offer all the remaining shares of OSK at the highest transacted price of RM1.68. At RM1.68, it is an offer which is at a 33% discount to its Net Asset Value of RM2.52. We know where's the value for OSK is from. It has a holding of 9.81% of RHBCap, thus at its (RHBCap) current traded price of RM8.47, the total value that it holds on RHBCap is RM2.07 billion.

At RM1.68 on offer to the minorities, the valuation for OSK is RM1.63 billion. Besides the associate stake in RHBCap, OSK has its property arm which could have at least be valued at RM500 million. Hence, OSK could be worth in excess of RM2.5 billion.

Now, what can investors do? Nothing.

For the OSK family to offer at a price of RM1.68, they would have thought and planned hard for it. I do not know whether they will up their price, but I doubt so. (This statement comes with a disclaimer)

For them to buy back all the shares from minorities, the OSK family will need around RM1 billion. Do you think they do not have the funds? Cash wise, perhaps but there are just too many people or funds out there whom would line up to offer the financing.

Also, have we not heard of the rumour where RHB Cap is to be privatised or something like that.

Like it or not, I would not want to bet on this as I think RM1.68 is going to be almost the highest offer they would be willing to give. Wait a minute, perhaps the rumour that RHBCap is going to be privatised could be true. Otherwise, why would OSK's largest shareholder be quickly firing this big cannon. They could have slowly accumulate (through other parties) right?

13 comments:

Malaysia Stock Talk said...

Ong is just increasing his stake in OSK. Don't think it is an issue to the minority.

The offer price is not attractive and this will not attract many to accept the offer. Do not think it will be delisted.

Minority shareholders who see value in OSK can still keep the shares as the offeror intends to maintain the
listing status of OSK shares.

Not a surprise if the independent adviser comes out with recommendation not to accept the offer as it is "unfair and unreasonable"

Fung C.F. said...

As tricky as always, Tan Sri Ong is doing it again.

However, the arbitrage gap is so obvious and I doubt they will receive adequate acceptance to push the deal. It is an insult to the shareholders' intelligence by offering this price. Unless the shareholders list are packed with hidden cronies.

So far, no sign of aggressive buying in the open market yet. I wonder, was it merely an unavoidable trigger of GO? Or am I too naive to see the hidden story?

AdCool said...

Has the minority share holders been taken for a ride? Dividend aren't in tandem with the gain from the disposal of OSK securities. And with recent dividend by RHB, instead of rewarding the shareholders, they get a GO of RM1.68.

felicity said...

Part and parcel of the market :)

DayTrader said...

Counter is undervalued as rightly pointed out. I also think that Ong is just increasing his stake and thus triggering of the GO was unavoidable. He probably also thinks that the GO won't go through at this kind of offer price. Good way to get attention from the market though.

Black Ink said...

A superb way to electrocute the market - out of lazy complacency into some solid upward price-action.

Fung C.F. said...

I roughly checked on the market comparables of PLCs holding another PLC as associate, namely Batu Kawan (KLK) and PPB (Wilmar). (Is there any other example?)

It turns out that Batu Kawan is selling at 30% discount to its adjusted book value (similar to OSK) while PPB is trading at 35% premium.

I guess Batu Kawan is still a better comparable given that:
- Both OSK and Batu Kawan have low trading volume
- M'sian PLC holding another M'sian PLC

Bottom line is, in normal market, there is no certainty of profiting from this kind of arbitrage gap (or undervaluation), especially in Malaysia.

DayTrader said...

Hi Fung

A good recent example would be AA and AAX.

Fung C.F. said...

Thanks DayTrader. AA+AAX is slightly different as AA's operation is still very much on itself, rather than "associate-heavy" like OSK and Batu Kawan.

alwayswin111 said...

Felicity
Do you plan to keep Bonia for long term?

felicity said...

yes for sure, unless it goes up to unreasonable level

DayTrader said...

AAX is technically an associate company of AA. It shares a lot of resources with AA from marketing to aircraft maintenance facilities. That's how they keep the cost low. They are probably the closest associate companies you can find among Msian PLCs in sharing of operations. The only difference is between short haul and long haul.

Ryanair operates everything under one company and makes no distinction between short haul and long haul so I am not sure why AA as a whole is structured in this manner.

Fung C.F. said...

Thanks again DayTrader. I think you misunderstood my point.

OSK, Batu Kawan and PPB have insignificant size of business under the consolidated group, and most of their earnings come from one associate company. Whereas for AA, AAX is just another department in form of "associate company", and AA's short haul department still contributes a huge chunk of earnings to AA.

So when comes to valuing them, AA(AAX) is not so straight forward like OSK, Batu Kawan and PPB.