Hwang-DBS Advises MMC Shareholders To Vote For SATS Purchase???

Blogged previously: MMC And Its Senai Airport Terminal Purchase! and http://everything27.blogspot.com/2008/12/more-on-mmc-and-its-senai-airport.html

On today's Star Business: Hwang-DBS advises shareholders to vote for SATS purchase

• Wednesday March 11, 2009
  Hwang-DBS advises shareholders to vote for SATS purchase
  By YEOW POOI LING
  
  PETALING JAYA: Hwang-DBS Investment Bank has advised shareholders of MMC Corp Bhd to vote in favour of the company’s controversial proposal to buy Senai Airport Terminal Services Sdn Bhd (SATS).
  
  Last August, MMC proposed to buy SATS for RM1.95bil via issuance of shares but the offer was revised downwards in December to RM1.7bil, to be paid with internally-generated funds, disposal of assets and external loans.
  
  The exercise, however, has fallen under scrutiny due to the present economic climate and the nature of the transaction, which involved a common major shareholder and parties related to Tan Sri Syed Mokhtar Al-Bukhary.
  
  In a circular to shareholders last Friday, MMC attached a recommendation letter from independent adviser Hwang-DBS, which deemed the overall terms of the SATS acquisition as “fair and reasonable,” and not detrimental to the non-interested shareholders of MMC. “There are sufficient merits to the rationale of the proposed SATS acquisition and it is in the long-term interests of the company,” Hwang-DBS said.
  
  SATS operates the Senai International Airport in Johor and holds 100% of Enigma Harmoni Sdn Bhd (EHSB), which owns 1,098.1ha designated for development into Senai Airport City.
  
  The investment bank said SATS was envisaged to play a key role in the transport and logistics segment of MMC given the strategic location to become the country’s southern logistic hub.
  
  It added that the discount rate of 10% to 12% used by Ernst & Young to value the Senai International Airport operations was within range of the cost of equity of companies involved in airport business.
  
  The implied price per passenger of the Senai International Airport of RM395 was significantly lower than other airports’ average price of RM700 from 1986 to 2006, Hwang-DBS said.
  
  Based on the price consideration of RM1.12bil for EHSB and its adjusted net asset of between RM1.18bil and RM1.35bil as at June 30, 2008, it translates into price over net asset of 0.83 times to 0.95 times, which were within the range of its peers of 0.26 times to 1.67 times.
  
  Hwang-DBS also said the valuations of EHSB’s land by IPC Island Property Consultants Sdn Bhd and Knight Frank Ooi & Zaharin Sdn Bhd were within Ernst & Young’s adjusted valuation range.
  
  IPC estimated the land at RM2.2bil while Knight Frank valued it at close to RM2bil. Knight Frank’s appointment as the second valuer complied with the Minority Shareholders Watchdog Group’s request for an alternative opinion on the valuation.
  
  The proposed acquisition of SATS would lead to MMC’s earnings in the current fianancial year being negatively impacted by RM44.06mil, or earnings dilution of 1 sen per share, assuming that the acquisition was funded entirely by bank borrowings.
  
  However, it would contribute positively to the future prospects of the enlarged MMC group.
  
  “As the Senai International Airport is already operational, there is no financial commitment required from MMC to put the existing airport business on stream,” Hwang-DBS said.
  
  SATS has stayed in the red in the past five years due to additional capital expenditure, high operating costs and financing payments.
  
  For the six months ended Dec 31, its revenue fell 3% to RM12.8mil from the previous corresponding period while losses almost doubled to RM7.9mil year-on-year. This was due to lower revenues generated and higher depreciation charges arising from the revaluation of the lease of the airport land in 2008.
  
  The MMC board, however, has forecast SATS to report a profit after tax of RM93.3mil for the 14 months ending June 30, 2010 on the back of property and sublease contracts sales as well as the success of SATS’ application for a 100% investment tax allowance.

Implied price per passenger?????

Holy cow great yardstick!!

Let me loook back at the following list of issues highlighted on the local papers.

• Based on the announcement, MMC has undertaken to advance RM417.2 million which is owed by SATS to the vendors. The vendors in the deal are Semarak Sestu Sdn Bhd and Suria Kemboja Sdn Bhd which own SATS. Both companies are believed to be linked to MMC’s major shareholder Tan Sri Syed Mokhtar Albukhary....
• In the first place, does MMC need more land? Even if it does, why must the deal be done now, especially in cash? Is it necessary for MMC to undertake the deal at this juncture when asset prices are fast coming down?
• When will Senai Airport and the land around it contribute to the bottom line of MMC positively? Also, what is the true valuation of Senai Airport and land that comes together with it?
• The unaudited net tangible asset (NTA) of the SATS Group and loss after tax as of June 30, 2008 are RM295.5 million and RM24.8 million.
• The proposed purchase of the 2,718 acres for RM9.45 per square foot (sq ft) is also questionable.Based on previous reports, the land was acquired from Lee Rubber at less than RM3 per sq ft. Now it is sold for three times the amount transacted less than two years ago.
• Why does it need more long term assets?
• Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them.

Let me try to understand hor.

On the back of global financial crisis that is bringing companies down to their knees, MMC wants to buy SATS, a company that is losing tons of money, in a CASH deal??? Cash??? Only rm1.7 Billion!!!! And yeah, SATS so happened to be owned by MMC boss also!!!!

And this is good for MMC shareholders???

And what's Hwang-DBS advice again?

In the Star Business article there is a chart.

Can you see all the years of loss making?

And 2010.. the incredible forecast is a profit of 93.3 million.

LOL!

Life is good.