MPHB/Magnum

MPHB/Magnum

Contrary to wide market expectations, Multi-Purpose Holdings Bhd (MPHB)'s plan to relist its numbers forecast operator (NFO) Magnum Corp Bhd has been put on hold, as the company shifts its focus to reformatting its business structure.

MPHB managing director Datuk Surin Upatkoon said there is no plan to relist Magnum for the time being.

Following its proposed acquisition of the balance 49% stake it does not already own in Magnum Holdings Sdn Bhd, MPHB expressed its intention to make gaming its core business, while it would work towards the rationalisation of its non-core assets such as insurance and stockbroking through a divestment programme. It gave no hint of the widely expected relisting of Magnum shares on Bursa Malaysia.

MPHB planned to raise about RM1bil by selling its non-core assets to focus on gaming.

MPHB could look more attractive now, given increased contribution from cash-cow Magnum and the potential divestment of its non-core assets.

Based on MPHB's results for the third quarter ended Sept 30, 2010, gaming contributed 91% to the group's total revenue and 65% to pre-tax profit. MPHB's revenue for that period stood at RM850.7bil, while earnings were RM126.5bil. This compares with revenue of RM813.2bil and earnings of RM51.6bil in the previous corresponding period.

The acquisition expected to be concluded by May 2011, does not include rm675 million of nominal value RCULS in Magnum.

The deal essentially values Magnum at rm3.34 billion. This translates to 11 times of Magnum’s 2010 forecast earnings based on MPHB’s nine month profit before tax from its gaming operations.

While its is not surprising that CVC is looking to exit as the three year timeframe for its investment is up, its willingness to sell its stake at a relatively low valuation could be rather puzzling for some.

But close scrutiny reveals that CVC is making a least 60% return of its investment in Magnum within three years, plus it will still have about 10% to 15% in MPHB.

Given that CVC is letting go its valuation stake in Magnum at a lower valuation, CVC would most likely be betting on the potential value of the MPHB stake it will be getting from the deal.

As a result of the acquisition, MPHB will immediately be earnings accretive for MPHB even after taking into account the enlarged entity.

Although MPHB will raise its borrowings by another 809 million, do not expect any increase in interest expenses as the debts in Magnum that carry a 11% interest rate will be retired and likely to be financed at a lower rate.

MPHB would most likely take on borrowings to finance the rm809 million cash portion of the purchase consideration as its cash pile art end Sept 2010 totalled rm765 million against long term borrowings of rm1.85 billion. But this is widely expected to be secured against Magnum’s strong cash flow.

While investors may be disappointed that the much talked about relisting of Magnum did not materialize, the acquisition would see the incarnation of Magnum in the form of MPHB – shareholders of Magnum would have full exposure to the NFO via MPHB.

The acquisition would make gaming MPHB’s core business. This presents an opportunity to rationalize its non core assets through a divestment programme to be initiated later. MPHB plans to raise some rm1 billion by selling its no core assets to focus on gaming. If there is any divestment, the funds will be used to pare down any outstanding borrowings.

MPHB also has business in the financial services, securities broking and property and leisure segments. Its largest revenue contributor, however, is the gaming business. Its second largest revenue contributors is the financial services division. It has also large landbank within its property division.

The divestment and landbank development will be the next re-rating catalyst for MPHB.

JIT News - MPHB/Magnum, Kulim/QSR, PriceWorth ...5/1/2011

MPHB/Magnum Corp: Market talk that the group (MPHB) could be firming up plans to relist its gaming subsidiary Magnum Corp Sdn Bhd. Sources say MPHB had yet to firm up plans to relist Magnum but could be negotiating with CVC Capital Partners for a deal to pare down the latter’s stake in the gaming firm, before a potential relisting, to a much lower shareholding in the region of 20%. This could mean MPHB buying back some shares in Magnum from CVC. The pricing would be higher bec Magnum’s performance has improved. CVC might wants to divest some stakes in Magnum Corp given that it has been more than two years since it invested in the privatization gaming outfit in 2008.

Kulim/QSR: Kulim has continued increasing its interest in QSR by acquiring another 320000 shares in Dec 30, 2010. Its latest acquisition increased its direct and indirect stake to 57.83% in QSR.

PriceWorth: About 7.5 million shares or 4% stakes were crossed in off market trades over the period of Dec 22 – Dec 27 2010 at between 42 sen and 55 sen for a total of rm.349 million. It has not made any announcements to changes in its shareholdings. Its largest shareholder is MD Lim Byuk Foh holds 29.37% in the company and Sukmah Bidu and Lee Kian Vui hold a 9.53% stake each. In Dec 29, 2010 it proposed a warrants rights issue to raise rm43.43 million upon full exercise of the warrants. Apart from mfg it is also involved in timber extraction. In Jan 2010, the company secured a timber concession in Sabah after acquiring a company for rm25 million which was satisfied by issuing new shares. Its earnings had been in the downtrend in the last three years as timber exports were hit hard by the financial crisis and sluggish prices. But recently its net profit for 1QFY2011 ended Sept had improved slightly. It had cash and bank balances of rm12.24 million as at end Sept 2010 while borrowings totaled rm238 million of which rm189 million is short term borrowings.