Vincent Tan increases stake in telecoms service provider to 40%

Tycoon Tan Sri Vincent Tan (pic), who is known for his acumen in spotting potential in small companies, has previously been a passive investor in integrated telecommunications service provider REDtone International Bhd.

But his acquisition of a 10.53% stake from Indah Pusaka Sdn Bhd, a company controlled by Cheras Umno division chairman Datuk Seri Syed Ali Syed Abbas Al-Habshee, has changed the dynamics of his position in REDtone, which is a small player in the crowded telecommunications field.

Tan, with the acquisition of the stake through a subsidiary of Berjaya Corp Bhd (BCorp), increased his presence in REDtone to 39.92%. This consequently triggered a mandatory general offer (MGO) for the rest of the shares that BCorp did not own in REDtone at 80 sen each.

Based on the share price which is below the offer price, it appears that Tan and BCorp is poised to control REDtone. The question is what does Tan see in REDtone that others don’t?

Tan is not a person to be under-estimated when it comes to putting his money on undervalued stocks. He is an early investor in the Malaysian chapter of McDonald’s, owns StarBucks and persisted with Mazda. These are some of his investments that have turned into multi-million companies from a small outfit.

He has an impressive track record in the telecommunication sector. He was an early investor of DiGi, the telecommunications service provider and made a pile from listing and selling it to Telenor Group. He controls U-Mobile, which is still being built up to prepare for a listing with Singapore Technologies Telemedia Pte Ltd.

So why the need for REDtone, which is also in the telecommunications sector?

“Perhaps it is the growth potential of the new tele-radiology services that got him all excited,” says an analyst

REDtone ventured into the healthcare services sector by providing tele-radiology services last year.

It is investing RM50mil over a five year period and had set up a tele-radiology exchange centre to cater for tele-radiology needs by domestic and regional hospitals, says REDtone managing director Datuk Wei Chuan Beng.

What REDtone essentially does is have a pool of radiologists in the region to interpret CT scans, MRI and even ultrasound images. The readings are then sent back to the respective hospitals or medical centres. The hub is in Kuala Lumpur and the scans can be sent from any hospital.

For now its clients include several hospitals in the country including the KPJ group of hospitals, some in Vietnam and Philippines. It recently inked a deal to enter into the Indonesian market.

There are hundreds of government hospitals in the country that may not be fully equipped with CT Scans or even MRI machines, so that is what REDtone is after, besides private hospitals in the country. The biggest incentive for hospitals and medical centres to use the services is that it would result in cost savings. Thus far REDtone had roped in 20 experts in radiology to be its pool of radiologist to read and analyse all the scans that come to them.

“We are targeting both government and public hospitals and the feedback has thus far been positive,’’ he says.

In the Philippines and Vietnam, it is working with several groups, and in Indonesia it entered into a deal with Indonesia’s biggest telco, PT Telekomunikasi Indonesia Tbk to work on managed information and communication technology value-added services and solutions as well as to explore the possibility of jointly establishing a Teleradiology Exchange in Indonesia.

If REDtone gets a contract to provide tele-radiology services to all the government hospitals in Malaysia, it would be a big feat and that will see the contribution towards revenue for this new venture gaining.

Wei says the contribution from the health care services was a few million ringgit last year, it will be about 3% to 5% this year.

“For 2016, we expect the contribution towards revenue to be about 10%, and that is definitely positive,’’ he says.

For now, data services remains the biggest contributor towards revenue, making up 60% of revenue, followed by voice business of about 30%, and the rest is about 10%.

Tan’s BCorp on March 12 had increased its stake in REDtone to 28.29% and two weeks later bought more stake and now it has 39.92% equity stake.

The MGO is subject to BCorp getting at least 50% plus one share. BCorp needs only 12% more to reach the target to make the offer unconditional.

This week the independent circular was out and two out of the four independent directors of REDtone rejected the takeover by BCorp, and their rejection echoes the move by the Sultan of Johor, to decline the offer much earlier before the independent advice was out.

The Sultan of Johor is the single largest individual shareholder with 134 million REDtone shares or 20.13%.

The board comprises 10 directors, of whom four are independent. The two directors who rejected BCorp’s offer were senior independent director Mathew Thomas Vargis Mathews and independent director Jagdish Singh Dhaliwal as they found the price of 80 sen a share to be too low. The remaining two independent directors are Datuk Mohd Zaini Hassan and Avinderjit Singh.

Besides the low offer price for the takeover, Vargis Mathews and Jagdish felt that shareholders should reject the offer because it did not take into consideration the long-term growth potential and prospects of REDtone.

On Thursday REDtone announced its net profit decline by 36.8% to RM3.15mil in the third quarter ended Feb 28, 2015 compared with the same quarter a year ago on a delay in billings for data projects.

REDtone shares closed at 79 sen on Friday.

Small distractions in the company should deter long term investors. After all, they should take the cue from Tan who would not put his money in the company if he did not see the potential.

REDTONE (0032) - 一股作气:U Mobile会注入立通？ 

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