OSK Property Holdings Bhd
OSK Property Holdings (OSKProp) Managing Director Tan Sri Ong Leong Huat has recently expressed his intentions to merge PJ Development Holdings (PJD) and OSKProp to create a property giant.
Ong is substantial shareholder for both companies, owning 71.7% of OSKProp and 21.3% of PJD. He is also the major shareholder of OSK Holdings (OSKH) with a 38.6% stake. OSKH, which currently has a market capitalisation of RM 2035.1 million, has a 9.9% stake in RHB Capital.
Incidentally, RHB Capital is currently involved in a proposed merger exercise with CIMB Group Holdings and Malaysia Building Society. Thus, OSKH itself will end up with a smaller stake in the enlarged merged entity. If it can dispose of this stake, the company will be cash rich and can afford to acquire both PJD and OSKProp under its umbrella.
If OSKH does not acquire the two companies, a straight forward share swap merger exercise between PJD and OSKProp is also possible.
With a market capitalisation of RM 547.8 million, OSKProp is trading at 1.2 times book a trailing 12-month P/E ratio of 6.2 times. PJD, on the other hand, is 46.8% bigger with market capitalisation of RM804 million, but trades at much lower valuations of 0.7 times book and a trailing 12-month P/E ratio of 3.6 times.
Between the two property stocks, which should investors choose? While Ong has a larger direct stake in OSKProp, PJD may be a better bet due to its low starting valuations and the higher number of minority shareholders to entice. In a share swap exercise, that suggests OSKProp can afford to offer a higher price for PJD, and yet create a win-win exercise for shareholders of both companies. If OSKH does acquire both companies directly, it may also need to entice minorities of PJD with a higher valuation.
This article first appeared in The Edge Financial Daily, on October 16, 2014.