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PEB (former TRIPLC): Keep an eye on the INSIDERS!

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Publish date: Sun, 28 Oct 2018, 12:02 AM
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Introduction
Today I would like to tell an arbitrage opportunity which has the potential of making 40% gain in the next seven months. The opportunity is about a stock named PEB (former Triplc), a PN16 cash company.
 
 
 
 
Background
i3 is a wonderful place where people would do their research and share them here. What you need to do is to just filter out the wrong ones, and listen to the correct ones. That being said, I am very blessed to learn about Triplc from Jay back in October 2016. He's a very good writer and I thoroughly enjoy his writings. Basically the story of Triplc goes like this:
 
1. Triplc, being a typical Malaysia crony company, runs an extremely simple yet lucrative campus construction, maintenance and concession business and has undervalued landbank.
 
2. In 2016, Triplc decided to dispose all of its assets to Puncak Niaga for a total cash consideration of RM210 million, which translates to approximately RM3 per share. The exciting news was that historically, Triplc's share price was never traded above RM1.75 pre 2016. This implied a huge upside potential for people who dared to bet on the success of the disposal.
 
3. The disposal eventually went through, Triplc transferred its listing status to PEB, and that was immediately followed by a special dvidend of RM1.95 per share. This left a net cash of RM3 - RM1.95 = RM1.05 per share in the company.
 
5. PEB, being a PN16 Cash Company, has 12 months starting from 31 May 2018 to submit a proposal to acquire a new core business which subject to approval of Securities Commission Malaysia (SC).
 
6. Failure to implementing a proposal to acquire a new core business in the next 12 months starting from 31 May 2018 will result in repayment, i.e. pro rata distribution to shareholders. (http://www.bursamalaysia.com/market/listed-companies/company-announcements/5811621)
 
This post is about betting that the repayment will happen with high probability.
 
 
Overview & Concerns
Whereas PEB is now traded at RM 0.75, its NTA stands at RM 1.05. Should repayment happen seven months later, the gain is 40%. It's a lot considering it materialises in such a short period of time.
 
Now the question is why does nobody seem to be interested in this arbitrage opportunity? Why do people like to focus on SPAC (Special Purpose Acquisition Company) like Red Sena but not PEB? Isn't this a free lunch? Isn't this a hundred-dollar bill lying on the ground? Why is nobody picking it up?
 
The catch is while SPAC is given 3 years to acquire new business or else 90% of capital repayment will ensue, PN16 company can always ask for extension to acquire new businesses. That means our waiting period may not be 7 months, it could take forever if PEB management keeps asking for extensions. This concern was brought up by i3 member NOBY in one of Jay's Triplc posts:
 
Nice article Jay. I just want to point out that the timeline for regularisation of a PN16 company can take more than 1 year (not fixed like a SPAC). You can take a look at Premier Nalfin (a similar PN16 type arrangement), they have been in PN16 since 2012 if I m not mistaken.. keep requesting for extension and multiple failed RTOs during this period. Its hard to say the same wont happen here.
 
This is indeed a valid concern. So now we need to find out how similar are these two PN 16 companies and whether PEB will follow Premier Nalfin's path.
 
 
A six-year arbitrage play: Premier Nalfin
In 2011, Premier Nalfin Bhd, after disposing its entire core business, had slipped into PN16 company with a net cash position of about RM116mil. Since then, it had failed to secure new viable core business but kept requesting for extensions of time for the next six years until 2017! In 2017, it was eventually delisted and all the cash was distributed back to its shareholders, but the time cost was too great for its shareholders.
 
It does look a little worrisome to us as six years is a long period for shareholders to wait on a company that is not generating any revenue but holding mere cash. It's certainly not a ideal candidate for arbitrage play.
 
 
Will PEB follow Premier Nalfin's Path?
Short answer, no.
 
The biggest distinction between Premier Nalfin and PEB is that Premier Nalfin didn't distribute special dividends after its disposal like PEB did. It could mean Premier Nalfin were actually determined to find new business to acquire. On the other hand, PEB immediately distributed RM 1.95 out of the RM 3 proceeds they had gotten from the disposal. What does it mean? I think the answer is obvious. But why didn't PEB distribute everything they've gotten from the disposal? i.e. RM 3 per share. To answer this, let me quote Jay's comment:
 
Triplc (PEB) distribute RM1.95 which is the max it can distribute with its current retained earnings, if not more approvals needed and delays.
 
So now we know that PEB wanted to 1). distribute maximum amount of money out of the disposal, as well as 2). distribute them as soon as possible. If they were serious about acquiring new business, they wouldn't have done either of the above.
 
 
Keep an eye on the INSIDERS!
Remember the title of this post is "PEB (former TRIPLC): Keep an eye on the INSIDERS!". Let's investigate and understand the motives of the insiders behind this seemingly unnecessarily complicated disposal which consists of transfer of listing status from Triplc to PEB, share exchange from Triplc to PEB, the disposal itself, and special dividends. It's purposely crafted to be complicated, but if you know who's the major insider and who's the major beneficiary, it's not too hard to understand why capital repayment is the most likely outcome.
 
The major insider of this disposal is Tan Sri Rozali Bin Ismail who is a major shareholder of both Puncak Niaga and Triplc. According to Puncak Niaga 2017 Annual Report, his range of remuneration in Puncak Niaga is RM8,750,001 to RM8,800,00! And according to Triplc 2017 Annual Report, Rozali's direct and indirect stake in Triplc was 26.473%. In other words, from this disposal, Rozali will pocket 210 million * 26.473% = 55.59 million, which is approximately 6 times of his annual remuneration in Puncak. How delicious?
 
Now that roughly two-third of the 210 million were distributed back to shareholders. I believe the remaining one-third is not too far away from being distributed as well.
 
 
Risks/Suboptimal Scenarios
There are two suboptimal scenarios:
1. PEB comes out with a proposal for acquiring new core business in the next seven months. This changes the nature of our bet from arbitraging to investing, which may or may not turn out to be a good investment. There's a possibility this would happen, but as said earlier, the probability is low.
 
2. PEB asks for extension and it means that it will take another one year to close the arbitrage gap. This could happen if the insiders want to take it slowly, i.e. they could ask for extension to cause the share price to drop while they could buy more cheaply, and then announce the repayment next year.
 
 
Conclusion
I foresee the distribution of remaining cash back to shareholders seven months later. This conclusion is reached after evaluating the insiders' motives as I don't think they are in any way serious about acquiring new core business.
 
If you buy PEB today, you are buying a company which has pure cash of RM1.05 at a discounted price of RM0.75. Should everything go smoothly, you will be seeing a 40% gain in 7 months' time. Should it turn ugly, your money is trapped indefinitely till the management is happy to distribute the cash back to you, or the money will be used to acquire new business.
 
Would you bet on this one? Happy to hear your opinion.
 

 

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28 Oct 2018
- InvertInvestment
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Discussions
Be the first to like this. Showing 7 of 5 comments

Jon Choivo

Interesting, but a touch of a stretch.

The worry is you get stuck with a business you're not interested in, when most companies in bursa seem to having a fire sale.

2018-10-28 01:55

Learner King

Shut up la stupid jon...don't make comments that u don't know

2018-10-28 08:40

DK66

I like to add a few of my observations;
1. If Rozali’s initial intention was to fully distribute all cash proceeds, he could have initiated a takeover offer where all shareholders get RM1.05 per share immediately. A faster and less complicated approach than creating a shell company to house the listing status.
2. A more logical rationale, other than ulterior motives, for such move is to retain the listing status for sale to gain extra dollars for shareholders.
3. Having Triplc going thru complicated restructuring instead of an outright takeover will place the shareholders in suspense. Judging from the price action of Puncak, shareholders likely become skeptical of the ulterior motive of the controlling shareholders. Uncertainties has caused some shareholders to sell out which has caused the price of Triplc to fall to RM1.50 at one point in time. This has created great opportunities for the insiders to accumulate at extremely low prices.
4. As only 90% of the proceeds are placed in a trust account with interest, the directors can still enjoy fat salaries doing nothing for the next 2 years.
5. With only less than RM70m in its Bank, Triplc is unlikely to be able to acquire any profitable business assets as required by PN16 regulation to stay afloat. RTO will be its only option which entails a general offer to all existing shareholders. All decisions will require 75% approval from shareholders. GO has to be done above the cash value to be successful. Thus, RTO, if any, will be beneficial to the existing shareholders.
6. Can its PN16 status be extended under the new PH government which promote clean and healthy practices? PN16 extension can only be granted if there is evidence of business dealings such as MOU.

2018-10-28 09:32

davidkkw79

Even LGE has told their friend not to invest in bursa stocks now, u buy what stocks in bursa also die.

2018-10-28 10:31

teareader818

Look for your own food. Why depend on sharks for food? Have you looked at the picture of a killer shark lately?

2018-10-28 10:34

InvertInvestment

>Jon Choivo
You've got a point there. This is just a little punting amid global uncertainties :)

2018-10-29 21:01

InvertInvestment

> DK66

Thanks for the input, it helps a lot:)
Looking for suitable RTO might lengthen the time span and thus increase the unpredictability of this arbitrage play..

2018-10-29 21:38

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