There could be a potential windfall for Lion Industries Corp from its subsidiary's disposal of 100 per cent equity interest in Silverstone Bhd, according to OSK Research.

Lion Industries' 73 per cent-owned subsidiary Lion Forest Industries (LFI) announced yesterday that its 84.2 per cent-owned Silverstone Corp has disposed of entire equity interest in Silverstone Bhd for RM462 million to Toyo Tire and Rubber Co Ltd.

'The disposal will give rise to a net gain of RM140 million to LFI, from which about RM102 million will in turn flow back to Lion Industries' consolidated profit and loss statement after taking away a 27 per cent share of profit to minorities,' OSK Research said in a research note today.

The research house said Lion Industries may eventually see an earnings dilution, especially since the tyre business is the main income contributor of LFI.

OSK Research said it decided to reduce the contribution from the tyre division by 50 per cent for financial year 2011, considering that the deal is expected to be completed in January 2011.

'However, we are hopeful that the negative implications on earnings would be compensated by the potential special cash payout in the form of a dividend,' it said.

OSK Research said Lion Industries should reconsider its decision to park the newly proposed pelletising plant under the group instead of 21 per cent-owned Lion Diversified Holdings, especially now that the company may potentially be sitting on a huge cash pile.

'As Lion Industries operates an 880,000 tonne per year hot briquetted iron plant in Labuan and needs more than 1.3 million tonnes per year of iron ore pellets, we believe this project would obviously provide synergy for the company,' it said. -- Bernama