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This article first appeared in The Edge Malaysia Weekly on July 8, 2019 - July 14, 2019

TUNKU Datuk Yaacob Khyra, executive chairman of MAA Group Bhd, was in high spirits when he met The Edge a few weeks ago. He seemed relaxed and was his usual extroverted self. This was despite MAA’s minority shareholders shooting down in end-May a RM1.10 selective capital repayment (SCR) exercise mooted by Yaacob in a bid to take MAA private. Yaacob, via the Melewar group, controls 38.67% of MAA.

“I knew it was 50:50, I knew people would ask me for more [money], there were quite a number of green mailers, but we had already decided we were not going to entertain green mailers. We did this to tell the shareholders that we are prepared for this company to get delisted, but they said they wanted more [than RM1.10 per share]. The question is, how long is the piece of string?

“I decided this is the amount I am prepared to pay. Maybe I should have paid more, maybe I should have paid less, but I’m not into this, I’m not a bargainer. I just made an offer. If you don’t like it, fine. I don’t care if it (MAA) gets delisted, I’m going to proceed doing what I want to do, I’m going to do what I think is right. We are in this situation now where the entrepreneur wants to do something, the regulators are saying no, and I gave the shareholders a chance to exit, they decided to ride with me and the management.

“I joined MAA in 1986 and I spent 30 years building it, and we are at a stage now where we have a cash pile. I’m a long-term guy, I’ve been with this company for 30 years and I’m prepared to go another 30 years, but I’m not sure if the shareholders are prepared to do that [hence the SCR],” he explains.

Based on the existing businesses, largely the group’s insurance operations in the Philippines, Yaacob says he needs four to five years to deliver profits to revive MAA’s fortunes. However, he is taking an unorthodox approach and going against the grain to do so.

In mid-May, MAA announced to the stock exchange that it had been given an extension until Oct 31 to come up with a restructuring plan. Whether he gets anything done before then remains to be seen, as much of the negotiations seem to be at an early stage.


The way forward

Yaacob explains that MAA will focus on four core businesses: financial services, education, property development and lifestyle (such as hotels and restaurants).

Apart from lifestyle, the others are businesses that the group has experience in.

At present, it has an insurance outfit in the Philippines, MAA General Assurance Philippines Inc, which is its main revenue generator. In addition, MAA is looking at moving into areas such as micro-financing and factoring, which is similar to money lending. Factoring involves buying invoices off parties who cannot wait for the stipulated payment periods.

In education, MAA wholly owns Kasturi Academia Sdn Bhd, which runs tuition centres. It is looking at expanding its scope to operate private primary and secondary schools.

CTOS Lite Report indicates that for its financial year ended December 2018, Kasturi Academia suffered an after-tax loss of RM347,627 from RM3.34 million in revenue. As at end-December last year, the company had accumulated losses of RM1.23 million.

However, Kasturi has been around since 1983 and is a well-known tuition centre operator.

As for property development, the group has developed parcels of land in Cheras and Klang, Yaacob says. Among its developments is Prima Avenue Klang.

However, MAA is in no rush to launch any project in view of the soft property market.

A look at MAA’s annual report shows that in April, the company appointed one Muk Sai Tat as senior vice-president of property development. How he will fare remains to be seen.

Yaacob says the lifestyle segment is an area where there is real growth potential and complements the property development arm.

“This (lifestyle) is where the growth area is now … consumerism, lifestyle. Also, it is less capital-intensive but high yield, but of course high risk, hence we are going to focus on the investments on the time-period point of view — short-term profits, medium-term profits and long-term profits.

“Long term can be more green field, no immediate need to show any profits because it is an idea, a concept, an angel investor role. Medium term, meaning already existing businesses that need a period to grow, a bit like MAA Philippines ... it is already existing and just needs a few more years to grow. Then, of course, the short-term ones, which would be finance. We have a company called MAA Credit which is our money-lending company. There are a lot of areas there,” he explains.

For the first three months of 2019, MAA registered a net profit of RM6.57 million from RM44.24 million in revenue. For the corresponding period a year ago, it incurred a net loss of RM12.63 million from RM39.16 million in sales.

In the notes accompanying its financials, MAA says, “In 1Q2019, the group recorded a profit before tax of RM7.8 million (4Q2018: loss before tax of RM11.7 million). The profit in 1Q2019 was mainly contributed by net fair value gains on investments.”

As at end-March this year, MAA had cash and cash equivalents of RM256.84 million, and little in terms of liabilities.


What went wrong at MAA

If its share price is any indication of how well a company is doing, in the go-go years in the 1990s, MAA was trading at RM14 a share. But it slowly started sliding after it sold some key units and failed to acquire any interesting assets.

More recently, one issue, it seems, has been the requirement by the local bourse that MAA buy a single company with substantial earnings as opposed to a few companies that collectively contribute significantly to the group’s bottom line.

“Bursa needs us (MAA) to make a huge acquisition ... the businesses are so big (hence) I didn’t acquire anything, so that is why the share price was weak. If there had been no PN17 and I was allowed to do what I want to do — for instance, Tune just bought an insurance company in Vietnam — we could have done that... if PN17 did not require us to buy something profitable which is big.

“Tune (Protect Group Bhd is talking to) an insurance company in Vietnam, which is small and not profitable. It is called long-term business, buy now and build. We couldn’t do that because of this funny PN17 rule,” says Yaacob.

To put things into perspective, MAA has been classified as PN17 since September 2011 after it sold its main insurance business, Malaysian Assurance Alliance Bhd, to Swiss-based Zurich Insurance Co Ltd for RM344 million.

MAA fell into PN17 status after this as Malaysian Assurance Alliance contributed more than 50% of its revenue.

“PN17 should be for companies in distress but we were not in distress ... we had no loans, we had running businesses, MAA Takaful (Bhd) and MAA Philippines.

“Since then, Bursa has changed its rules. Now, to be PN17, you have to have an NTA that is 25% of your paid-up capital, and we were nowhere near that. Under the new category, we are nowhere near PN17,” Yaacob says.

In mid-2016, MAA sold its 75%-owned subsidiary MAA Takaful Bhd to Zurich Insurance Co Ltd for RM393.75 million cash.

“We didn’t actually want to sell Takaful, but Zurich made us a very attractive offer ... five times book. When we sold MAA conventional, we sold it for two times book... It was a good deal, so we sold ... we were not trying to sell, it was a good offer. So we were still PN17, but since the deal was so attractive ...”  he explains.

Now, the plan is for MAA to take the expertise garnered over the last 30 years in Malaysia to countries like Vietnam, and maybe even make inroads into Europe, use internet marketing and avoid the use of agents, which can drastically increase costs.

“Are we not experimenting? Yes, we are and we have no proof that we will succeed. It’s a gut feel, it sounds good. I cannot guarantee success but in my view, it’s worth trying,”

“The insurance business in Europe is long term. I cannot show shareholders profits [immediately]. We might lose all the money, but maybe if we don’t invest too much, it’s worth a try. I’d like to do that, I want to do that. Will it guarantee a profit? No, it won’t. Will it get us out of PN17? No it won’t, but it’s worth trying,” he explains.

While the minorities may have blocked Yaacob’s plan, MAA’s share price has remained at higher levels above 90 sen. Prior to the SCR offer, the last time the stock traded at the RM1 level was October 2007.

MAA’s share price closed at 96 sen last Thursday, giving the company a market capitalisation of RM262.6 million.


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