Jay's market diary
Triplc Part 4: Not the most ideal outcome
For new readers, this is already part 4 of the articles I have written on Triplc so you may want to explore the old articles for your own reference and for better understanding.
What’s the deal now?
Triplc will set up a shell company called Pimpinan Ehsan Berhad (PEB) and Triplc will become a subsidiary of PEB. If you own 1 Triplc shares, eventually it will be exchanged to 1 PEB shares and PEB take the listing status. There's an illustration of the corporate structure shown in the announcement which you can refer (I have problems inserting the image here)
After that Puncak will acquire Triplc from PEB for RM210m cash without the need to takeover the whole company and PEB (currently Triplc) get to stay listed. And more importantly, this means that all other current subsidiaries of Triplc will now be sold to Puncak, including those which hold land, other assets, borrowings and liabilities. This also means that PEB, upon selling Triplc to Puncak, will be one of the cleanest company you can ever find in Bursa with minimal (or no) assets other than cash and zero to minimal gearing. The only thing valuable left would be the cash, listing status and whoever employee that remains in PEB.
Recap of previous parts
Let’s go down memory lane and recap what I have discussed or predicted in earlier parts of this series.
Price movement against target price
|
|
Published Date |
Closing Price |
Period |
Target price |
Lowest |
Highest |
|
Part 1 |
19-Apr-16 |
1.44 |
19-Apr to 28 Jul |
2.00* |
1.38 |
2.31 |
|
Part 2 |
29-Jul-16 |
2.23 |
28 Jul to 22 Aug |
2.85 - 3.20 |
1.68 |
2.40 |
|
Part 3 |
23-Aug-16 |
1.76 |
23 Aug to 16 Dec |
2.00 – 2.80 |
1.55 |
2.32 |
|
Part 4 |
23-Dec-16 |
2.05 |
16 Dec to ? |
2.70 |
? |
? |
* Fair value estimated RM4.79-RM5.49, RM2.00 given due to perception and other issues
Other predictions
Part 1
1. Puncak will acquire Triplc Medical and Triplc Ventures – Partially correct (Turns out they acquire all biz, but at that time the 330 acre land deal was not cancelled yet)
2. No funding problem from Puncak – Correct (despite acquiring plantation biz, Puncak still has ample warchest to pay fully in cash)
3. Independent advisers will need to be appointed by Triplc as well as Puncak – Correct (KAF and Public IB are now their respective independent advisers)
4. Will be a major disposal and at least 75% shareholders’ approvals required – Correct
Part 2
1. Puncak will acquire the biz, not launching a takeover offer – Correct
2. There will be dividend to avoid PN16 – Wrong (no dividend has been announced and PEB will be a PN16 company after disposal)
Part 3
1. Ulu Selangor Land is worth at least RM105m – Correct (Khong & Jaafar value it at RM153m)
2. Puncak won’t buy the land – Wrong (the deal in fact will include all the land as well as other assets and liabilities)
So overall I think I got it pretty close, although some of the deal structure and details were not anticipated but hey, you can’t get everything right every time in life.
How is the offer different from my last estimation?
In Part 3, I illustrated what I think is the fair price for different scenarios. In the disposal of concession biz and land scenario, my estimated fair value is RM250m-RM295m. The offer is RM210m which is quite significantly below my range. Furthermore, I only included 1 large piece of land estimated at RM105m, now the deal includes all the land which is in total estimated at RM258m (that one piece was valued at RM154m) but additional RM73m non-concession borrowings. If I had included these, my estimated fair value could have been RM330m – RM375m.
So what’s the potential culprit? I’m afraid I don’t have a real answer since the details are not provided in the announcements (circular might give more details). But in reality, things extend beyond financial numbers. Puncak share price has been on a declining trend for some time and the shareholders are quite pissed off. Puncak will need to present a good case to the shareholders that it is buying good assets at a good price to get the deal voted through. Triplc shareholders, even if they are unhappy, but the offer of about RM3 per share would still be a reasonable premium to its recent highest price (although the RM3 cash is not offered directly to shareholders). In this case, it seems that the deal is tilted to Puncak’s favour to appease the shareholders.
An undervalued proposition
But from face value alone, the valuation does seem to be a bit too low. RM258m land – RM73m borrowings (exclude MTN) would have been RM185m excluding concession biz. If you take the cash balance as non-concession related, then net borrowings for non-concession is almost zero. That would mean, based on valuer’s fair value of RM191m to RM230m, the concession biz are valued at a paltry sum of RM6m to RM45m. Z1P2 alone Puncak stands to receive RM42m x at least 18 more years = ~RM760m. Even with borrowings plus interest say RM300m, it’s still dirt cheap to pay less than RM50m to get RM460m in the next 18 years plus every year maintenance income.
Even when you compare to a recent transaction by Bintai Kinden, they bought a university concession which has RM120m contract value, annual payment RM12m for 22 years. The valuer valued it as RM24m-RM27m, actual transaction price at a discount RM15m. Even if you use RM15m for RM120m, RM599m contract should be at least worth RM75m while Z1P2 completed contract should also be worth easily RM15-RM20m. Combined plus the RM185m land with borrowings would be closer to RM280m. Which makes me really curious and I would like to see how the valuer actually values the whole company. I think it’s artificially pressed down.
Besides, after this deal, PEB won’t be able to use the Triplc track record to bid for future university concession projects (Rozali won’t let it cannibalise Puncak). So they lose their construction and concession biz as well as all its land bank and track record for RM210m, Puncak could have made a better offer.
While KAF is appointed as the independent adviser, I don’t think they will have the balls to disagree with the valuer. I'm not familiar with KAF so I did some googling. Turns out they were the independent adviser for Puncak for the last water disposal deal. Things do smell fishy so don't expect them to be too independent.
The only good things from the offer were that at least the offer is still at a decent premium to market price and it’s an all cash offer. Personally, I don’t want Puncak shares as that would have complicate things.
EGM potential outcome
My gut feel is that Puncak has a 80% chance of getting it approved while Triplc may be 60:40.
Puncak most likely will go through because they just need 50% shareholders’ approval and on paper, the Triplc acquisition offers good value at a decent price, although some shareholders currently don't see it (most likely due to lack of understanding of the concession biz).
Triplc may be trickier. They need 75% approval and of the 69m shares outstanding, about 25m are considered related so has no voting power for the disposal. Of course Rozali may have other proxies holding shares but with the remaining 44m, if a group of minorities holding more than 25% or 11m shares vote against, the deal will be snagged. Plus, the lack of special dividend really doesn’t help.
So fight or flight? If you really strongly feel that the deal has shortchanged you as a Triplc shareholder, you can vote against the deal and hope for a better offer. But just remember, while Triplc has great value hidden inside, without Puncak’s offer to unlock it, how much will the company be valued by the market will be a big uncertainty. Personally, I would hope for a higher offer and I also think that even if the deal is rejected, it's not end of the world (explained in sections below) but I wouldn’t go all in fighting Rozali & co. So if you are hell bent on fighting Rozali, better make sure this is not the biggest bet in your portfolio.
My target price and recommendation
Deal completed scenario
The key question is, will Triplc suffer the same fate as Puncak, high net cash but share price kept declining?
Possible, but I don’t think so. The one big difference between Puncak and Triplc is Triplc will become a PN16 and PN17 company after the disposal. PN16 means 90% of the monies will be locked up and operated by custodian and can only be used for acquisition of new biz or distribute back to shareholders if they fail to acquire (similar to SPACs). A PN16 and PN17 company is also required to regularise its condition within 12 months or risk getting suspended and delisted. There’s no benefit for everyone in PEB getting delisted as a listing vehicle is valuable.
Let's see how PN16 companies performed.
The last PN16 company was Tecnic Group Berhad after they sold their subsidiaries to SKP Resources. After the ex-date, the company was left with cash and receivables of about RM24m (they distribute most of the disposal proceeds). The market cap after ex settled around RM30m, before it shot up to above RM40m after they announced a reverse takeover plan. Another example is Abric Berhad. They were left with net cash of RM75m or taking into account working capital RM70m, after ex-price its market cap traded around RM65m to RM85m. Now after failing to acquire new biz, it’s distributing most of its cash back to shareholders and was suspended. Last market cap was around RM70m vs last net cash around RM70m.
This is in contrast to Puncak. After disposal of water assets, they have plenty of cash but the cash is left to the management to do whatever they want and under no pressure or timeframe to act while the remaining biz continue to bleed losses.
With PEB being a clean cut company (pure cash) of about RM3 per share post disposal, I think it’s more likely to trade like Tecnic and Abric rather than Puncak but I discount 10% for the Rozali negative perception. So I believe the fair value of Triplc should be around 90% of RM3 or at least RM2.70, which is why after the disposal announcement, I asked people to collect below RM2.20 and prepare to wait for at least 6 months. If you can get below RM2.20, that should give you a potential return of >20% and some margin of safety.
Deal rejection scenario
There will be more uncertainty, on whether Puncak will come back with a better offer (of course if Puncak shareholders reject, then forget it). If Puncak does not or market thinks it won't, Triplc price may suffer some overhang especially if it's already trading close to RM3.
But it's not end of the world. By my estimation, EGM will happen most likely around May/June. Z1P3 earnings should start in the May quarter which will be released in July. Thereafter next 3 years will be earnings upcycle for Triplc. Plus, thanks to the property valuer, we now know that the landbank in Triplc is significantly undervalued (RM66m net book value vs RM258m market value). So when your land market value less non-concession borrowings itself is already worth RM185m or RM2.65 per share and your earnings is just about to shoot up, there should be some limit to how much Triplc price will fall.
Epilogue
This is the 4th part of my Triplc series and possibly my last part. It has been a bumpy but otherwise good journey since I first wrote on Triplc. I’m aware that regardless of all the disclaimers possible, someone out there might still invest based on my articles which is why I always make them as comprehensive as possible. While I do not encourage people to blindly follow what I say, I'm at least pleased that should anyone have bought Triplc based on these article, most should still be sitting on some handsome unrealised profit. Even for those unfortunate ones who bought at the highest level, I also believe that most likely you will get at least your capital (maybe with some return) back in the next 6-12 months.
After this article, I will no longer actively write about Triplc unless some unexpected event occurs (e.g. if deal rejected in EGM). Otherwise I wish everyone good luck and special thanks to those who had followed this series from the beginning for your support and feedback.
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Discussions
4 people like this. Showing 32 of 32 comments
Jay: U dont understand the whole scenario. This is only ur research. U dont know anything in Triplc. Is good for Triplc to sell off the company. Triplc already got its new business... High dividend will be paid in triplc and bought the new business with borrowing. This is the usual tactic used by Rzl. If minority of shareholders dont wan to sell. They will got nothing. The share price will remain at between 1.50-2.00 for many years. No dividend will pay. Get the special dividend and get the new business. After the special dividend, the price will still remain at between 1.50-2.00. After that hold or not the PEB is depended on u. Worth to accept the offer?
2016-12-23 21:33
the deal is a major disposal, so it's 75% approval.
for PN16, the regularisation plan has to get SC approval. Unlike Bursa, SC can give companies a hard time. Ask any investment banker you will know. Those SPACs also got a hard time getting their QA cleared by Bursa
2016-12-23 22:20
@rogers123 I'm afraid you are the one who don't know anything.
from my first article I already mentioned Puncak is the key to unlock the value in Triplc. No dividend has been proposed so far so I won't go ahead and assume special dividend. The reason why Rozali offer RM210m is that he is also betting it is a sufficient premium over current price to entice Triplc shareholders to sell.
But you can't deny that it is not the best offer, land value alone is RM258m, borrowings is not a problem unless you assume the concession is a loss making biz (which by track record is not).
I'm not saying that Triplc shareholders should vote against, just be mindful of what could happen in both scenarios. Triplc got a decent offer but I still think Puncak got a better deal to appease their bitter shareholders
2016-12-23 22:30
Jay: The land is 258m? This is the value the market quoted. Doesn't mean that u can sell at this value for leasehold land. U can have watever price for ur land, but no buyer. The previous buyer is just a wayang kulit show. U sell the land, but u still got bank loan to pay. I believe tat market is efficient. it will always reflect the real value of the company. If triplc is like wat u said that good, it should reflect the price earlier, but not until the pre acquisition only reflects the real value. The triplc up not because of the business, but the acqusition of rm3. Insider already knew there is an acquisition last year before the deal of puncak. Only middle of this year, they knew it will be 2.50++. If there is no acquisition, i believe tat it will still stay below rm1.60. Bear in mind, u cant guarantee concession or project will contribute positive income. Eg, Sino case in China. It is all depended on the management team.
2016-12-24 09:56
Jay: The deal will get through no matter wat. They already hold alot of proxies for both companies to make sure it will get through. One question to u, if puncak wan to acquire triplc, Y don they buy triplc in the open market and accumulate slowily, puncak might save alot for acquisition since puncak already have the takeover plan before the syabas deal.
2016-12-24 10:02
Jay: I was shocked when u published the first article for triplc. But i just realized that u didnt know about the acquisition plan when u published it.
2016-12-24 10:12
@rogers123 Unlike u who seems to only know how to comment off-hand and criticise others, I have done my homework. the land value I already did a reasonableness check in my previous article compared with other transactions in that area, the value is not that far. yes I agree that there may not be a ready buyer now, but that doesn't mean that there is no value. If you pay attention, you would have noticed in the past few months big developers are accumulating land already
On concession, are you seriously comparing UiTM concessions with China project? Besides, when the same team has done >RM1b projects in the same vicinity, I don't think they will have much problem, unless Puncak screw it up
2016-12-24 11:28
Puncak can accumulate slowly, but how slowly? I'm sure you don't know Triplc's average daily liquidity, how much can Puncak accumulate? Besides, Puncak hold no shares, it's owned by Rozali and his companies. which means Puncak has to accumulate from zero, and when Puncak and Rozali combined cross 33%, Puncak and Rozali has to jointly do a mandatory takeover, i.e. Rozali is also responsible for the offer
Unlike some naive commenters, Rozali is not that dumb
2016-12-24 11:32
of course I don't know the acquisition plan, I'm not insider. I can only use reasonable logic to piece together info available. even with that limitation, I think I did a decent job.
maybe it's time for you to do some of your own research instead of always blaming others when you lose money
2016-12-24 11:36
RZK hold big portion in puncak...
he won't just let it go like that lah....
buy now...
2016-12-24 11:44
Jay: Sorry to say. I have let go all my triplc with 30% return. I didnt hold any share in triplc. Just reconsider to buy back later. Yes. I admited tat i hold alot of puncak at the average cost of 0.93.
2016-12-24 14:05
Jay: Rzl is too clever n greedy. If i recalled back wat happened before 2008, RZL was asked for RM10-12 to sell off syabas and puncakniaga to kps.
2016-12-24 14:07
Jay: U r not the only one who did the research. We all will do our homework as well when buy shares.But just sometimes theoretical and practical is not the same.
2016-12-24 14:13
Like wat will happen to KPS, century bond. Century bond is profitable company. After the acquisition, will century bond will still make profit under kps hand? Business is easy to manage on paper, but in real, will it? YLI is a good example. After bought by Tan Sri Jojo, indirectly linked to Sultan Selangor, wat happened to the share price?
2016-12-24 14:21
Jay: I didnt criticise ur article, Puncak has offered a good price to triplc. Triplc minority should accept it
2016-12-24 14:35
nobody foresaw Pakatan winning 2008 state election and certainly no one foresaw Pakatan government refusing to honour the water concession contracts. so not selling water companies back then may not be the wrong decision at that time. of course you can impute a worst case scenario where opposition wins coming national election and refuse to honour all concessions, but the probability for both events to happen is low
The biz is one of the easier one and the management already knows how to run it. In the future when it is run by Puncak then I'm not sure.
I didn't say it's a bad price, just not the best. I'm sure this is the price which they think have the best chance of getting approvals from both sides' shareholders. let's just see what will happen
2016-12-24 16:45
It's very clear now that Rozali wants to keep the listing status. Most likely it will be one of the 2 scenarios.
First is a normal acquisition with cash and borrowings, if necessary. This would keep the shareholding structure intact. Second is acquisition with share issuance and/or cash, i.e. RTO. After the acquisition, the seller will become new major shareholder. If Rozali wants to benefit himself and sell the control of Triplc/PEB, then will be the second scenario.
In any case, PEB is under no obligation to distribute the cash back to shareholders. The cash will be locked up with the custody until proposed acquisition is approved. Only scenario of cash distribution is like Abric, after they fail to find target, they gave up and distribute.
Both scenarios can involved Rozali or others' assets. The regularisation plan will definitely need shareholders' approvals, regardless of who is the seller. On top of that, they will also need SC's approval. Just look at what Tecnic is going through now.
2016-12-24 17:58
Why Triplc directors sell their shares recently? They know something we don't?
2016-12-24 18:01
just to clarify, once it falls into PN16, PEB can't distribute the cash as dividend unless they don't intend to maintain the listing status. They can only pay dividend before they fall into PN16, which is if they suddenly u-turn and announce dividend out of the RM210m in the coming circular (they mentioned further details of the utilisation of proceeds will be in the circular) but it's safer not to assume that
2016-12-24 18:18
Actually, to keep everything simple, Rozali can proposed a dividend of RM 2.55 per share along with the EGM. That will push the deal through.
2016-12-24 23:14
The Triplc directors sell their shares are due to their cost is very low at RM1.39+ from ESOS. They may want quick cash out. I believe they will announce dividend as this is also a good option for Rozali and directors to cash out b4 election. This also can help in them getting shareholders approval to pass this acquisition in EGM. If they didnot cash out and go for another acquisition, that would take long time pending SC's and shareholders approval.
2016-12-25 10:50
Triple fall in PN16 company actually good for minority shareholders as directors cannot do like what puncak do now. They hv to put the cash in trust account and find a new biz which cannot find good one hv to return to shareholders.
2016-12-25 10:55
r°Moi .
Beware TRIplc minorities
Take note of r°Moi rationality
If Puncak minorities... want exposure on TRIplc... they can buy personally.... at way below RM 3.00
Why must Puncak minorities... get TRIplc forced down their throats by rosali... at RM 3.00 ????
The independent advisor to Puncak minorities... PBB... must too have this rationality
Else..... complain to SC....
Ask rosali.... to call off this RPT.... immediately.... dont waste money
.
26/12/2016 18:43
2016-12-26 18:44
unfortunately minority logic is different from Puncak. minority can always buy 1000 Triplc shares from the market, but there's not enough volume to buy the entire company.
shareholders in fact should ask rozali to call off the plantation acquisition, it's much more expensive and gives very little for the next few years. After a few years, who knows what's the CPO price going to be? Puncak already considered getting a good deal from Triplc
2016-12-26 19:53
Raider comment,
Agree that triplc shareholder objective diff from puncak shareholder objective but put it this way.....the deal must be ur benefit loh;
Triplc
The rm 3.00 deal looks reasonable, but Rozali wants to keep, it all for himself by creating listed PEB under his control, without paying a single cent of div to shareholders, u agree ?
Of course not, u want a substantial part of the rm 3.00 to be paid to shareholder mah....!!
U must fight loh comprises of;
1. Complaining to SC & Bursa
2. Complaining to Minority Watchdog group
3. Complain to Press
4 Complain to Triplc and Puncak independent Directors, put them on notice ,they must act for the benefit of company and not Rozali mah!!
5 attend the egm
Next be prepare for self help, vote against the deal if they is no proper dividend payout despite your demand above :
As a minority u hold alot of power, bcos Rozali cannot vote & he needs 75% of the balance independent shareholding and 75% of the shareholders number to support....not an easy feat to achieve loh..!!
Do not worry, u may kill the deal loh....bcos Rozali as a businessman, he will always comeback with another better proposal to please the shareholders to get shareholders support mah...!!
Show that, u are not being bullied & taking advantage loh...!!
Don be cheap, Lets fight for the shareholder benefits loh...!!
2016-12-26 20:14
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.
2016-12-27 15:53
you are correct. 12 months is just what the listing requirement states, they can always ask for extension. and another major difference with SPAC is you can't vote against the proposal and get back the cash value. the only protection is they can't touch the cash (90%), that's all
2016-12-27 18:45
@Jay: A highly interesting & far sighted set of articles. Thank you for your insight. Based on the recent developments of the EGM, what is your recommendation? I'm holding some TRIPLC shares (unfortunately, slightly above your recommended RM2.20, but still some upside if target price RM3.00 is reached), so I would appreciate some advice from my perspective as a TRIPLC minority shareholder.
2018-02-22 15:36
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Jay, thanks for all the details about puncak and triplc.
2016-12-23 12:48