OLDTOWN – The Harsh Reality of Takeovers

Roughly a 10% gain for the offer price of RM3.18 from previous close of RM2.88. By far this isn’t the biggest gain we see from a takeover. We see an immediate gain of 20% from IGB then and this isn’t close to what we expect. At least they could have offered a price above¬† Not much premium to talk about here and this is why there’s a harsh reality when takeover happens giving your rubbish prices.

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Pretty much around 3 quarters ago (Sep 2017), we see price dropping continuously and volume is still intact in a small range not to overly do the sell off or ignite somewhat any alert with huge spikes that bring in attention. The key here is to lower the price slow or slightly.

Why?

Days before the acquisition announcement turns official, we usually see volume and price spikes

This is the most common case since things tend to leak on the way to submission either its from the valuators, accountants or anyone dealing with the company. If you work in the HQ of Oldtown and see people walking in to your office every day, you can already tell that something is brewing (pun unintended; not coffee obviously) and words around office spread like wildfire,

That is why the lower the stock price goes before a trading halt is put into place, the bid price would seem to be giving more premium.

In the case of Oldtown, being such a big company has its cons where something like an acquisition involves a big group of people. More people knowing equals higher possibility of leak.

Lower last traded price = Lower acquisition price

Who doesn’t want to buy cheap?

Indeed there are cases where some acquisition can be planned over the course of few years because the main shareholders are huge and with the power to depress the price further.

It’s a major advantage where they can properly time the acquisition with the ideal price in favor of an expected huge rise in revenue or profit. Truly an unfair advantage but is likely going to happen only to smaller companies.

The next time you are buying a stock just because they have 50 – 70% of cash value, think again. Before you know it, they have the power to privatize and you are merely holding to a few thousand units which is not significant to make a difference.

This guy here… we still think that they list to get money and institutions are buying back at a cheaper price than listing.

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More room for price revision

This is just in case, where if the acquisition fails to get through they could bid higher slowly rather than already paying the maximum that they can afford.

The Harsh Reality?

In our books, Oldtown is a very good counter with tonnes of growth ahead. If you bought Oldtown earlier hoping that their growth into China would make the stock a multi bagger returner, your hopes had been shortened and expected profits had been reduced by a huge fraction.

Fundamentally the company also has a very strong cash holding with little debt to cover. Another good factor to take into account where these could be consider a strong buffer for a company entering a new market increasing its risk exposure.

The offer price is definitely lower than the expected FY2019, FY2020 price at current PE. We expect FY2019 to be somewhere around RM3.50 a share (assuming all plans executed). There isn’t much you can do other than hoping for a price revision in the case where most shareholders reject the offer bid.

Probability of a Rejection?

Old Town International Sdn Bhd is the biggest shareholder with a whopping 40.99% in the latest annual report. Based on this shareholding, we can only conclude that the deal will likely go through as the Sdn Bhd itself might want to take it private as well.

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Revenue and profit just started to stabilized and with such a rich cash holding (approx RM200 million) in their books, they have more than enough for the expansion in new markets. So why share with the public shareholders for the coming returns? Furthermore, the assets could sustain without increasing its debt exposure.

If the company requires funds to expand again, then it might list once more but until then this might be a good bye if you are very positive on making huge returns from OLDTOWN.

 

 

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INARI Another Record Breaking Quarter

What wasn’t said had already been said by the stock price that flies this morning. It is easy to read when quarterly reports post higher revenue and higher profit where there’s no argument to be made clear unlike the TUNEPRO review¬†(< click for link) that we posted earlier.

Although this is the record quarter for Inari, we think that it is not over for the obvious fact that Q1 2018 which ended in September 2017 doesn’t factor in the iPhone X yet. The teardown for the latest iPhone X has already been done and I count 3 parts in the preliminary teardown.

Broadcom BCM59355 wireless charging controller

Broadcom AFEM-8072, MMMB power amplifier module

Broadcom touch screen controller, labeled BCM15951B0KUB2G.

Not sure how these parts contribute to INARI but the whole list isn’t detailed yet in this teardown.

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Meanwhile, here is a report from CIMB on Inari Amertron

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CIMB on Bumi Armada Oct 2017

Well we still like Bumi Armada compared to other operators such as Sapura Energy. We think that the future prospect for Bumi Armada could be considered neutral but the current premium that it is trading is much cheaper than other operators.

But this report from CIMB gave us the heads up from this paragraph.

Bumi Armada Berhad (BAB) may need rights issue, on top of partial Olombendo stake sale

So I guess the weakness in terms of the stock price not moving with the increase in the price of crude comes with the reason of analyst anticipating a rights issue ahead. We would love to acquire after the stock goes Ex. Simple as that!

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What Stocks have Foreigners Been Buying?

Take a look at Credit Suisse’s latest report on a summary of What Stocks have Foreigners Been Buying in Malaysia.

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Biggest increase in foreign shareholding:-

1. Malaysian Airports, +13.7pp
2. Gamuda, +8pp
3. Maybank, +5.4pp
4. CIMB, +4.8pp
5. Sime Darby, +2.7pp

Reduced Foreign Holding:-

1. Air Asia, -9.6pp
2. Karex, -3.0pp
3. Tenaga, -2.4pp
4. IOI, -0.5pp
5. Telekom, -0.5pp

CIMB Downgrades Malaysian Banks

The argument for the downgrade refers to the implementation of Malaysian Financial Reporting Standards (MFRS) 9. Somewhat similar to CET1 ratio, the provision methodology would change under MFRS 9.

It was estimated that under MFRS 9, it would negatively impact the net profit of banks in the future.

See the full report below including sensitivity analysis of respective banks.

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