UEM Group Bhd has stepped up its asset disposal programme by putting its 45% and 34% stakes in Time Engineering Bhd and Faber Group Bhd respectively on the seller’s block, sources say.
It is believed that UEM Group will invite tenders for Time Engineering, like in the Pos Malaysia Bhd sale, while buyers have been hard to come by for Faber.
The company declined to comment when contacted by The Edge.
“UEM Group wants to focus on its core businesses of property, construction and expressways, and neither Time Engineering nor Faber fits into those businesses,” the source says.
UEM Group’s 34% holding in Faber, represented by 124.47 million shares, is worth some RM352.25 million based on the counter’s closing price of RM2.83 last Thursday. Its stake in Time Engineering is worth RM125.68 million.
Time Engineering is an information technology (IT) concern while Faber is involved in the integrated property management business. Speculation in the past suggested that the Pantai Group of Hospitals was interested in buying Faber as it is an experienced hospital services provider.
The takeover would also make sense because both Faber and Pantai ultimately share the same majority shareholder — Khazanah Nasional Bhd.
The source says that finding a buyer for Time Engineering was proving to be difficult. The company’s main business is providing solutions for e-commerce, cyber security and integrated intelligent infrastructure.
However, it is believed that any bid for Time Engineering will have to be made at around the 50 sen per share mark before UEM Group will consider the offer.
Time Engineering’s share price is now at 36 sen while its net tangible assets is 19 sen per share. It had cash of RM92.73 million and debts of some RM305 million in the form of loan stocks as at the end of its 1QFY2010 ended March 31.
Faber is also experiencing similar problems in getting buyers but for different reasons. Its current price of RM2.83 translates to a prospective price-earnings ratio of 10.8 times based on its FY2010 earnings. Analysts have pegged its target price at RM2.99.
Faber’s net tangible assets is RM1.11 per share and it had a cash hoard of RM82.13 million in bank balances and RM254.57 million in short-term deposits as at the end of its 1QFY2010 ended March 31. Faber’s borrowings totalled RM164.24 million in the same period while its trade and payables came up to RM257.39 million.
A catalyst for a re-rating of the stock is the impending renewal of its medical services concession sometime in 3Q2010. If the concession is renewed, it will further boost Faber’s valuation.
UEM Group, a wholly-owned subsidiary of Khazanah, has accelerated its asset disposal programme in line with the government-linked company (GLC) transformation programme.
This point was reinforced in the recently released 10th Malaysia Plan, which said the role of the GLCs was to “focus on areas that support the creation of a vibrant private sector while withdrawing from areas that do not enhance value creation”.
While the disposal plan has been on the table for several years now, it has only been with the appointment of Datuk Izzadin Idris almost a year ago that it seems to have taken off.
Izzadin, former CFO of Tenaga Nasional Bhd, is a well-known cost manager in corporate circles and has overseen several major disposals since his appointment. The biggest so far is undoubtedly the sale of Pharmaniaga Bhd to Boustead Holdings Bhd, announced on June 11, for RM534 million.
A source says the Pharmaniaga disposal was an indication of the rationalisation programme at play in UEM Group.
“Pharmaniaga is making money, but it still had to go because it didn’t fit UEM’s business. UEM Group has a limited amount of capital and it needs to focus more on its core projects,” he says.
The priority areas for UEM Group at the moment, the source adds, are construction and property projects such as the development in Nusajaya, Iskandar Malaysia, and its highway operations that are mainly held by PLUS Expressways Bhd.
According to UEM Group’s website, the company has interests in seven different sectors, although the ultimate goal is to streamline this to three.
UEM Group also sold its subsidiary UEM Land’s 20% stake in Touch ‘N Go Sdn Bhd earlier in the year to PLUS Expressways.
Following the disposal of Phamaniaga, it was believed that UEM Group was raising cash to support Khazanah’s bid for Singapore healthcare company, Parkway Holdings Ltd. But the source dismisses this, saying that it was “insulting to Khazanah” that it would need to raise cash from selling UEM Group’s assets.
To recap, Khazanah has proposed to undertake a partial voluntary offer for Parkway, with a view of getting 51% in the healthcare provider. But it is facing resistance from India’s Fortis Holdings.
Meanwhile, Time Engineering seems to have put its troubles behind it, paying out its first cash dividend since at least 2000 when UEM Group took over the company. Time Engineering announced a 1.33 sen gross dividend payment on May 26, which was approved by shareholders at the company’s AGM on June 22.
Central to Time Engineering’s success is the appointment of CEO Steven Lim Kee Seng, who twice turned around the company, with the most recent effort coming after the company fell into PN17 status in 2008.
Lim, who took over in May 2009, oversaw the regularisation plan that led to Time Engineering’s upliftment from PN17 status in November 2009. Time Engineering has embarked on a number of regional projects, notably a data security deal in Laos.
The question for Time Engineering is whether Lim will stay on should a new majority shareholder emerge in the company.
Both Faber and Time Engineering were part of the much-criticised plan by UEM Group to rescue Renong Group in 2000, which saw UEM take over various assets from the debt-laden conglomerate.
Two years later, Khazanah privatised UEM, which resulted in its takeover of Renong Group from its previous major shareholder Tan Sri Halim Saad.
After taking over UEM and its array of listed companies, Khazanah embarked on a GLC transformation plan with the view of turning around the companies and disposing of assets that were non-core to its operations.
However over the years, the only major divestment has been Crest Petroleum Bhd to Sapura Group in 2003. There were several minor divestments, such as Time dotCom Bhd, in the last few years, after Khazanah came under pressure. The common complaint was that Khazanah, with its array of companies in various economic sectors, was crowding out the non-GLCs.
But UEM could not divest as the pricing was not right. For instance two years ago, Faber’s share price was at 90 sen apiece. But now, the valuations of its companies have improved significantly. The question is, who will be the takers?
This article appeared in Corporate page of The Edge Malaysia, Issue 812, June 28-July 4, 2010