MMC And Its Senai Airport Terminal Purchase!

Published on Star Business: MMC shares fall on weak sentiment

• Wednesday December 10, 2008
  MMC shares fall on weak sentiment
  By LOONG TSE MIN
  
  PETALING JAYA: Shares in MMC Corp Bhd fell yesterday on weak sentiment, after the company announced revised terms for its proposed acquisition of Senai Airport Terminal Services Sdn Bhd (SATS).
  
  MMC shares fell 8%, or 10 sen, to RM1.15.
  
  AmResearch said in a report yesterday that it expected sentiment on the stock to remain weak due to concerns over corporate governance risks and a likely contraction in future earnings if the deal were to materialise.
  
  MMC announced on Friday that the price for its proposed acquisition of SATS and the surrounding 2,718 acres had been lowered to RM1.7bil, a discount of 12.8%.
  
  However, the purchase would now be paid for entirely in cash.
  
  AmResearch analyst Alex Goh said in the report: “This is a negative development as this involves the sale of MMC’s assets to fund the acquisition.
  
  “MMC may end up swapping a profitable business with a currently loss-making airport operation on top of a huge undeveloped land, which will take years to mature.”
  
  MMC is a related party to SATS through Tan Sri Syed Mokhtar Al-Bukhary, who is a major shareholder of both companies and also a substantial owner of the surrounding land.
  
  AmResearch is lowering its fair value on MMC to RM1 per share, pegged to financial year 2009 price/earnings ratio of six times compared with its earlier fair value of RM2.22 per share based on a sum-of-parts valuation of RM4.40 a share.
  
  The research house is also uncertain when the group can turn SATS’ operations around given the global economic downturn. However, it added that this could be mitigated if MMC managed to dispose of part of the Tanjung Bin land for cash.
  
  A local head of research, who maintains a “buy” call on the counter, disagreed with AmResearch’s view.
  
  “Why downgrade now when the price is lower? The acquisition is only a small part of MMC’s overall business and may have synergy with MMC’s (other logistics businesses) Port of Tanjung Pelepas and Johor Port assets.
  
  MMC owns 70% of the Port of Tanjung Pelepas and 100% of Johor Port.

I FULLY AGREE 108% with AmResearch views. **Yeah I agree more than 100%**

Nice to see Star Business publishing those comments, however...

I do not understand the reporting by Star biz on the last few passages.

• A local head of research, who maintains a “buy” call on the counter, disagreed with AmResearch’s view.
  
  “Why downgrade now when the price is lower? The acquisition is only a small part of MMC’s overall business and may have synergy with MMC’s (other logistics businesses) Port of Tanjung Pelepas and Johor Port assets.

So who is this LOCAL HEAD OF RESEARCH?

Why un-named? So shy?

Comeon, if those comments come from a HEAD OF RESEARCH why afraid to be quoted?

Comments like those makes NO SENSE when the source is not quoted!

So is the acquisition small? Can one compare with MMC's overall business and calls the Senai Airport purchase small? Can this HEAD OF RESEARCH justify the purchase in terms of returns? Yeah, what kind of return of investment are we even talking about? And can this HEAD OF RESEARCH justify the RPT in this deal? Yeah, RPT! It's like left hand selling to the right hand. Where is the justification to MMC's minority shareholders?

And on Business Times, the article was even better!

So firstly we have MMC shares being punished yesterday due to the RPT nature of a rather unjustifiable purchase of Senai Airport Terminal.

Look at what Business Times has to offer below. (Comments in Green is mine)

• Strong interest in PTP stake
  
  By Shahriman JohariPublished: 2008/12/10
  
  MMC Corp Bhd (2194), an operator of ports and power plants, may sell part of Malaysia's second largest container port to fund expansion plans, sources said. (Sources again?)
  
  The group, controlled by Tan Sri Syed Mokhtar Albukhary, has received strong interest from local and foreign parties to buy a stake in the Port of Tanjung Pelepas (PTP).
  
  "It is understood that one foreign party has even offered to take control of the port. That shows how much they value the business," one of the sources told Business Times. (one of the sources ah? Only one? )
  
  MMC needs to raise at least RM1.7 billion to buy airport operator Senai Airport Terminal Services Sdn Bhd (SATS), that also owns a big piece of land in Johor.
  
  MMC now holds 70 per cent of PTP, with the rest held by Danish shipping giant Maersk Line.
  
  Another source said an independent valuer has priced the port at around RM9 billion. (Full of sources!!!)
  
  Assuming MMC sells a fifth of PTP at this value, it could raise about RM1.8 billion. It would also still have control of the port, which is the 17th busiest container port in the world.
  
  Sources said that several large shipping lines including Taiwan's Evergreen Marine Corp have made their interest known, while some local institutional investors are also in the running.
  
  MMC's ports business, which also includes Johor Port Bhd, is the group's second biggest profit contributor after its power plants.
  
  In the year to December 31 2007, the ports division posted an operating profit of some RM418 million, its annual report showed. It did not give a breakdown of how much PTP earned for that year.
  
  MMC officials declined comment when contacted.
  
  Last week, MMC said that talks on the disposal were at an advanced stage.
  
  MMC has now proposed to buy SATS from Syed Mokhtar at a lower price and will pay in cash instead of shares.
  
  It had wanted to buy SATS for RM1.95 billion in an all-share deal when the stock was trading around RM2.80 apiece.
  
  However, it now has more than halved, which means that if the deal was done at a lower share price it would dilute MMC's shareholders (other than the main shareholders).
  
  MMC's earnings per share would also fall due to the bigger number of shares.
  
  "The current share price is not reflective of MMC's inherent value which now trades at a multiple of approximately only 0.7 times book value per share of RM1.94.
  
  "The cash consideration will eliminate earnings dilution resulting from issuing a sizeable number of shares at the current depressed price," it said in a statement last week.
  
  The new price includes RM580 million for airport operations and RM1.1 billion for SATS' 1,099ha of freehold land slated for development as a logistics city.
  
  However, the revised deal has been criticised by analysts who said the sale could be "value destroying" as it reduces profit from its core business. They also pointed out to governance risks as the deal is a related party deal while SATS has yet to make money.
  
  Shares of MMC fell eight per cent to close at RM1.15 yesterday. (my article source is here )

So many un-quoted sources in just one article. How? Where's the credibility in such reporting?