Since this is a follow up article for Why Triplc is too cheap to ignore and Puncak Niaga's role in unlocking its value , a lot of details won’t be repeated again here. You are encouraged to revisit the previous article if you get lost somewhere while reading this piece.

Recap

Time flies. It was now almost four months since I first wrote my article on Triplc. Since then, the price has also steadily gone up from RM1.50 to about RM2.20. I would like to think that I have contributed to that rally a bit by shedding some light on the counter, but the fact remains that without some big volume players pushing it up, the price wouldn’t have moved (and in the right direction).

So before the coming major announcement, I will just do a bit of recap and also answer some lingering questions.

What has happened since the announcement?

Well, the share price happened! And the average volume has also picked up, which is good especially for companies still on an uptrend. On the company side, nothing material has come up but if you noticed, there were quite a number of additional listing announcements – basically employees exercising their ESOS. Again, it is positive as it means the company and the employees share the same interest as you and I. However, since the ESOS price is very low (around RM1.10), so there’s not much we can decipher from to get our target price.

And then there’s their financial results.

Quarterly results a one-off surprise

The financial results just came out today. It was extremely good financially but personally I have mixed feelings about it.

The profit and EPS exploded because of a contract adjustment of RM16.07m from finalization of Z1P1 contract. As I understand, these concession contracts tend to have variations when they finalise their contract but Z1P1 is like ages ago. Why do they need so long to finalise? Don’t ask me because honestly I don’t care.

What I care is that this is positive for the company as it shows the profitability of the company and its contracts as well as increase the net assets (doesn’t affect my target price but more room to pay dividend).

If you compare this quarter results with previous quarter, one big adjustment is revenue went up a lot but other operating income came down significantly. I believe the company made an accounting error previously. In previous quarters, there is one interest income on receivables. Basically, this is the interest on the Z1P2 future cash entitlement which was discounted to present value. If you recall, Z1P2 cashflow for future is extremely lucrative but Triplc only recognize a much smaller amount in revenue due to fair value accounting. This fair/present value sum, there’s an implied interest in it, i.e. UiTM is allowed to pay over such long period because it is actually paying interest for the deferred payment. Such interest should have been recognize as revenue and I think the company now has realized it.

Why I have mixed feelings then? Because for me at this stage, I don’t find it meaningful to analyse its performance anymore (since we hope that they are selling their biz). Only thing noteworthy is on the status of corporate proposals which no further information has been provided. The land disposal, previously targeted to be completed by 2Q or Nov 2016, has no targeted completion date anymore since the last quarter while the Puncak HOA is still the same standard wording.

Have my assumptions change?

No, since nothing has led me to believe that there is a need to change them. I still believe that the two subsidiaries combined are worth RM180-RM230m, or about RM2.69-RM3.43 per share. Combined with the land disposal, the company is still easily worth more than RM4.00!

I also highlighted previously why the price could be capped below RM2.00 but I guess since the good news are imminent and insiders have discovered the value, it did shoot through the RM2.00 barrier. Since the price has exceeded my previous target of RM2.00, I have tried to find another preliminary target price in which the calculations are more conservative (see calculations below).

Q&A

Since this is a relatively low-key and opaque company, many readers have many questions (which I was unable to attend to, and also because it’s not my freaking job to!  Remember I'm not paid to do this). But I will take this chance to try to paint a clearer picture of what is to be expected (at least in my opinion, feel free to disagree if you have your own basis).

1. What is the most likely outcome and target price?

The million dollar question. I do think that both parties are serious in this transaction, so most likely it will happen. Target price is dependent on two factors, disposal of business and disposal of land. The land disposal we already know the value so the only uncertainty is timing and execution. Value for disposal of business is the key question. Ideally and assuming my calculations were correct, I would wish that Puncak will buy it for RM180-RM230m, but in reality I am more conservative.

If you look at cases of how companies with sketchy transparency and corporate governance track record do acquisitions, they usually get some professionals, usually accountants to play the devil’s advocate. The professionals will do up some value (depending on what the company has in mind) then the company will apply a discount and proudly announce that they are buying below the market valuation.

In Triplc’s case, since it is a RPT, Puncak shareholders will be scrutinizing the deal as well. So a discount could be possible. But even if there’s a 20% discount, we could probably still expect about RM145m-RM180m.

So if you add this together with the land disposal, divided by latest number of share that would be your target price (remaining assets should be negligible, most liabilities should go with the disposal as well).

Personally my new preliminary target price is as below:

20% discount for execution risk and 10% for timing. Number of shares I am discounting based on 70m as I think there will be more ESOS coming in (previously assume 10% ESOS way too conservative).  This is of course preliminary as it will depend on the final disposal price. The discount will also be reduced when something more concrete is happening.

Does the latest financial result or net asset per change my calculations? No, because ultimately I believe Puncak is going to value the biz based on DCF and they probably couldn’t care less about your NTA.

2. Will Puncak takeover the whole company? Isn’t it easier to takeover the whole company?

Based on the news and announcements so far, unlikely.

Firstly, taking over the company will also probably involve taking over the land in the midst of disposal. It is of course still possible to do it but it could complicate things legally and delay the process.

Secondly, Rozali will need to decide an optimum price. Pay too high, Puncak shareholders will be after him. Pay too low, then he runs the risk of some Triplc shareholders refusing to sell. It will be especially embarrasing if he owns more than 75% (doesn’t meet public spread) but less than 90% of those that he don’t own (can’t compulsory acquire).

Buying biz only involves getting 50% of Puncak votes and probably 75% from Triplc (not 90% like takeovers).

And most importantly, unlike Chinese tycoons who like to privatize their company at cheap valuations and keep the value to themselves, I believe Rozali has different ideas.

By doing this transaction, not only can Rozali access some of the cash in Puncak (through Triplc), he is also able to unlock the value in Triplc. Without this, Triplc would have remained another back-water company with deep value hidden. The price wouldn’t have moved without the catalyst.

Besides, even after Triplc sell their biz, the listing status itself is clearly worth something. A company with Main Market listing status, squeaky clean balance sheet, no pending lawsuits etc. would be a darling for companies looking to do reverse takeovers. And in RTOs, the major shareholders usually profit by selling it to the highest bidder (off the record of course). Last I heard, listing status of good companies could easily go for 8 figures. And that money of course, will be pocketed without sharing with shareholders of Puncak or Triplc.

3. Will there be dividend?

Most likely yes. As I said, Rozali’s intent is paramount. Transferring cash from Puncak to Triplc without distributing it simply doesn’t make much sense.

And by disposing their land and/or biz, Triplc will hold so much cash that they would fall into the category of PN16 or cash companies. In layman terms, if you hold too much cash relative to your net asset, Bursa will ask you to place the cash in an account which you would need to submit a plan on how you plan to use it. It’s a hassle, having to get approval to spend your own money. Paying enough dividend would mitigate this issue.

Having said that, the dividend amount could be capped by the reserves amount. But when there’s a will, there’s a way (capital reduction is possible).

4. After selling, Triplc won’t have any biz left. Shouldn’t we be concern?

Yes and no. Yes there won’t be any future prospect if all these transaction go through. Most likely it will also fall into “affected listed issuer” category as they don’t have any real biz anymore. But that’s exactly what we bought it for.

We bought (at least I bought) into the company because it’s selling its previously undervalued land and biz. Without which it would have remained undervalued.

Besides as I mentioned above, most likely other private companies would be targeting its listing status so there will be biz. But if there’s a RTO, accept the fact that most likely your stake will be so diluted, any future prospects is really none of your biz.

5. If offer price is low, should we vote against the deal?

Just remember, the target price is made up of 2 parts, land and business. What Puncak offers is most likely for the biz only. And low is really dependent on how you see it. If Puncak offers RM150m or RM2.20 per share, is it low? By my calculations yes but then I can still draw comfort that now I know exactly how much is the biz worth. Add it to the RM140m land disposal I know my intrinsic value now is still like RM4.00 per share.

Many people who bought this share without understanding this part could be in for a rude shock when the announcement comes. Even by my calculations, the offer from Puncak is unlikely to have much upside compared to its current market cap. The biz part only make up about 51-56% of my preliminary target price.

So it is possible in a few week’s time, the news headline will read something like “Puncak buying over Triplc biz for RM2.20 per share” and some investors will panic and run for the exit.

But of course it’s your right as a shareholder to reject the deal if you think it’s undervaluing the biz of the company. Just be clear that it’s the biz that they are buying and not the company. Triplc is still selling the RM140m land separately. For me, as long as it’s not ridiculously low, I don’t think there will be enough shareholders to vote against (I personally won’t). There’s no point going against the major shareholder as well. If you don’t like the deal, sell off the shares. Period.

The unlikely outcome

What if, touch wood, Puncak aborts the deal?

Then all bets are off.

Yes the company still has tremendous value. Yes the land disposal may still be on. But without Puncak, the company at above RM2.00 I would consider fully valued. The real intrinsic value will probably only be unlocked in 10 years instead of 10 months. It will be a whole different ball game.

You could still keep it for long term investment if you want but most of the existing shareholders won’t. So expect selling pressure if this happens.

Another possibility is land disposal being called off. Again my target price probably will be cut significantly due to uncertainty of timing (despite we knowing the value now).

Conclusion

Assuming both land and biz disposal are completed in the next 6-12 months, the current share price still offers tremendous upside. So ahead of the announcement expected by mid-Aug, hope this article clears up your doubts and let's hope that this stock makes us a good fortune ahead.

Good luck.

The author owns Triplc shares at a much lower cost. What he wrote is what he believes  (backed by some research and a bit of speculation). Caveat Emptor for those who are entering now.