Integrax's Future Potential Kingmaker

 

Integrax's Future Potential Kingmaker

If there is one issue regular (long or short-term) investors will experience is the issues of your stocks going to be privatised by the major shareholders or some buy-out exercise by some offerors at some point of times. And as usual there will be some (minorities normally) who cry "unfair play" as they feel that the offered prices are too low or cheap compared to its higher NAV (net asset value) or whatever method used to justify the fair price.

The recent article in The Star on Jan 22, 2014 : “Will minority shareholders triumph in seeking higher value?” The article discussed about the privatisations exercised proposed by two stocks: Triumphal and Perak Corporation Bhd.

In the very first place, minorities and the major shareholders are miles apart although they both are stakeholders of the same company. Minorities like me do not have access to the real "insight" situations of the company while the major shareholders are always in the advantage positions to determine the next move.

Take for example, an employee working in a public listed company is likely to know more than a shareholder (but not an employee of that company).

The employee may not know the real insight, but at least he is working there in the company to see how the performance is.

As a ordinary layman in the street, fighting against the major shareholders in a privatisation exercise is normally a futile attempt. Many times, I have refused to give in only to read that it has become a Mandatory Take-over Offer. So when that occurs, even if you do not be bothered to go the stock broking firm to fill up the forms and send it to them, they will still send you a cheque in the end!

TSM Global Berhad

On December 2011, there was this cash-rich stock TSM Global Berhad which had fallen substantially from a high of RM2 plus to only RM1 plus. As I have invested in TSM before and exited for a 50% profit early, the pulling back of the price was a golden opportunity to accumulate the stock again. After all, it was backed by a cash per share of almost RM0.88 at that time.

One of the main reason why TSM's share fell was because of its "unfortunately ill-timed" investment in Kenseisha (M) Sdn Bhd acquired on May 2010. Kenseisha is involved in the die-casting and precision machining of parts for the hard-disk drive (HDD) industry.

TSM was confident it could recapitalized and restructured Kenseisha into a business which would achieve break-even on the operation level by Feb 2011. Unfortunately the devastating Japan earthquake and tsunami in March put jeopardized the company badly. TSM decided to liquidate the company eventually resulting in making some RM32.2 million provision.

The famous quote of investing : "invest during the crises" couldn't be more true than this time. Investors threw down its shares and the share prices simply nose-dived faster than one could imagine.

I "urged" my followers to go for it. I set the tone by buying 36,000 shares at an average price of RM1.13. I still remembered only one follower was brave enough to buy and this brave follower bought about 15,000 shares.

I reckoned that TSM would be starting on a new slate again without the involvement in Kenseisha anymore. The beaten share price has already been priced in. At a price of just above RM1 plus was simply too good to be true for a company still backed by a strong balance sheet and with a strong business involving  in making automotive wiring harnesses, high-tension ignition cables and PVC wires and cables.

Even at that time, The Edge reported in its March 29, 2012 issue that the head of equities at Montpelier Offshore Wealth Management, Sharn Lee as saying he had spotted an under-valued gem.

"With cash and cash equivalents of over RM100 million and with the company's earnings at RM20 million to RM30 million, I thought it was a steal to buy TSM shares at RM1.10 then."

"At the time, TSM was getting rid of its loss-making hard disk drive manufacturing business. So, the company's prospects were good." Sharn said.

A general offer of RM1.25 per share was not in Sharn's equation when he was evaluating the investment risks. So was Kassim. Unfortunately, the company received the takeover offer two months later.

Despite strong feeling that this takeover price was too low, minorities still continued to accept the offer. Finally, the offeror succeded in getting more than 90% of the shares not held by the offeror.  and it eventually became a Mandatory Take-over Offer. Most probably, Kassim was the last few men standing as a minority in this case. I urged my follower not to accept the offer, but he decided to throw in the towel anyway.

And for the first time I have ever experienced in a takeover bid, I RECEIVED TWO TIMES hand phone calls from representatives of the offerors. Both times I told them I would not accept the offer. Alas, I am just a "David" in this case against the "Goliath".

I did not bother to do anything about it. But in August, I received a cheque for the total amount of my shares in TSM, like it or not. As allowed by the Capital Market and Services Act 2007 ("CMSA") and Companies Act, 1965, the offerors can invoke the compulsory acquisition of the remaining shares not held by them if the remaining dissenting shareholders (Kassim is one of them) decide not to take up the offer under the privatisation.

It is going to be almost two years since the TSM was taken private. As expected, there was no news about the company's financial performance so far at all. No more red tapes, I guess.

My personal bet it that the company should be doing good or even better because the sales of hybrid cars were very brisk, especially the last two years.  Hybrid cars requires more wiring parts which means more business for TSM.

Integrax Berhad

But wait, there is another potential hidden jewel from TSM. That potential hidden jewel is in their investment in port-operator Integrax Berhad, incidentally majority-owned by Perak Corp, which itself is in the midst of a privatisation exercise.

According to Integrax's Annual Report 2012, TSM is the 5th largest shareholders holding 12,000 shares (3.99%). TSM has been slowly and quietly building up its stakes in Integrax. It started to emerge with a 4,500 shares (1.5%) as at May 2010. Then it increased to 6,150 shares (2.04%) as at May 2011. Will there be a surprise of TSM's stakes increasing again when Integrax releases its 2013 Annual Report in the coming months?

Should Perak Corp's privatisation be successful, the next spotlight could be  on Integrax Berhad. We all know the Integrax is poised to be even more busy with so much activity going on there in Lumut. (My nephew who was based there for a few month's duty told me that the ports were really really very busy all day round). Tenaga Nasional Berhad is the largest shareholders in Integrax with 66,538,269 shares (22.12%).

With Tenaga's share price rising strongly to over RM11 and Tenaga itself one of the main users of the port, perhaps there could be one day some corporate exercise to take over Integrax. Should this happens, TSM would be one of the Kingmakers in this exercise. It would be in a good position to even derail the attempt unless the offer is of a very generous one.

Since the take-over bid of Perak Corp has begin, Integrax's share price has also been on a steady uptrend. It has steadily stays at the RM2.20 - RM2.30 levels for the last several days.

Coincidentally, Kassim bought a handful of Integrax shares at an average price of RM1.85 last year. Kassim is confident that it will be a matter of time the full potential of Integrax's business will be felt in its share price.

Based on the current share price of RM2.20 of Integrax, TSM's stakes of 12,000 shares amounts to some RM26 million. Any increase in the share price in Integrax would only be good for the shareholders of the company. And the privatised TSM's owners are now more than happy than ever.

Once again, I like to take this golden opportunity to wish a very Healthy and Prosperous Chinese New Year to all those celebrating in this Year of The Horse. No matter what happens, staying healthy is the most important criteria of all. For I have always believed that Good Health is Wealth!