YHS
It is in a prime position for M&As. It has a strong brand presence in Malaysia, but has been loss making of late. The company was dealt a blow when it lost the rights to distribute Red Bull products and has seen a change in management.
But it has been working to streamline its operations and improve its efficiency. It also held a cash reserve of RM89 million as the end of June 2010 and boasts a strong portfolio of brands spearheaded by its Yeo’s brand of drinks.
However, it should be kept in mind that YHS’ Singapore based parent company Yeo Hiap Seng Ltd has been performing well in comparison to its Malaysian counterpart.
Mamee
It is in a prime position for M&As.
It has been showing steady earnings on the abck of its instantly recognizable snack food portfolio headed by its namesake Mamee brand.
The company reported a net profit of RM10.6 million on the back of RM120 million revenue for 2QFY2010 ended June 30, 2010 and has a cash reserve of RM35.7 million. However, while the company has an overseas presence, it had to exit China given the challenge operating environment there.
Mamee is still chiefly family owned and run. However, given its relatively small size, it might be open to potential partnerships.
MFM
It is a potentially attractive target for one of the biggest players to buy a stake. In addition to local mills, the company has presence in Vietnam and also has a poultry and feed division.
RHB Capital
What’s Up? … dated Sept 2010
Sources say the EPF, the major shareholder of RHB Capital is not discounting the possibility of a bigger corporate exercise in its move to pare down its interest in the fourth largest banking group in the Malaysia.
It is said that some key people in top management at the EPF are looking at the possibility of RHB Capital merging with another local banking giant in the pension fund’s effort to reduce its interest from 55% now (Sept 2010) to less than 40%. But sources say it is only a preliminary discussion with a few people. Nothing has been put in place to get actual work started.
This is because regulations state that any merger or acquisition between banks must have BNM’s approval before the two parties can start negotiations officially.
According to sources, the top officials at the EPF have identified three potential partners – AmBank, Maybank, CIMB. Bit industry observers say they are the unlikely partners.
At the moment, RHB Capital is said to be attractive takeover target as it is the cheapest banking stock on the market. At RM8.40 (BNP Paribas’s target price), RHB Capital will be trading at a price to book valuation of 1.4 times. By comparison the industry average is two times.
However, based on a goodwill amount of RM3.7 billion in its book, some say RHB Capital is expensive at its current price of RM6.85.
There is also a view in the EPF that the bank should be under the control of EPF and that it should simply stick to its plan of reducing its equity interest to less than 40%. This is because apart from valuations, the EPF as a shareholder is financially strong with a lot of cash.
Having a lot of money is a problem for the EPF. If it were a minority shareholder in a much bigger bank, it may be indirectly exposed to unwanted risks over which it has no control. For instance, a bank that is controlled by the EPF would certainly think twice about lending to projects deemed as being associated with national interests. But the EPF may not be able to control its risk exposure if it has not control over the bank’s lending policies.
The EPF has until middle of 2011 to comply with a BNM ruling requiring it to reduce its 55% stake in RHB Capital to 40% or less. Although there is a time frame for the disposal of its interest, industry observers say it is a moving deadline because the EPF will not be forced to sell at valuations that are unreasonable.
The next biggest shareholder of RHB Capital is Abu Dhabi Commercial Bank (ADCB), which has a 25% stake that it acquired for RM7.20 a share in 2008. At the time, the purchase was valued at 2.2 times RHB Capital’s 2007 book value.
But such valuations are hard to come by these days as banks are required to put up more core capital while new regulations restrict the avenues for financial institutions to generate income.
Its is believed that RHB Capital’s transformation is working and that an increase in free float (when the EPF cuts its stake to less than 40%) will lead to better trading in the stock and pave the way for the entry of institutional shareholders.
Meanwhile, in whatever decision the EPF takes on RHB Capital, it will have to bear ADCB in mind. Thus, any move the EPF makes will have to be good for them too, which means it should also benefit the minorities.
