This article first appeared in The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023

The demerger of SMRT Holdings Bhd and its education arm, Minda Global Bhd, is long overdue.

Last week, SMRT announced that it was disposing of its 42% stake in Minda, which has 5,712 students at its four campuses. SMRT will incur a loss of RM65.2 million from the disposal to a company that is owned by major shareholder Tan Sri Palaniappan Ramanathan.

At the same time, SMRT also announced the purchase of 36% equity interest in a technology service provider, N’osairis Technoloy Solution Sdn Bhd, for RM72 million. The vendor of the block is Permata Kirana Sdn Bhd, which is majority owned by Datuk Ahmad Shalimi Ahmad Shaffie.

At the moment, SMRT already owns 64% of N’osairis, which has been seeing double-digit margins on its profits in the last three years. The company’s services are data collection, maintenance of hardware and software, network surveillance and monitoring of operations.

N’osairis’ customers range from companies in the power and electricity industries to those in the banking and finance sector. It also provides services to gaming and entertainment, food and beverage and retail companies. From 8,514 sites in 2019, N’osairis now manages 15,000 sites for its customers, mainly in Malaysia and some in Indonesia.

The two deals will result in SMRT becoming a technology company. As for Minda, the proposed sale will make Palan its major shareholder.

While the demerger makes sense, as SMRT has always been seen as being bogged down by Minda, what is perplexing is N’osairis’ valuation.

The technology company is valued at RM200 million, which translates into a historical price earnings multiple of 10 times. The transaction carries an enterprise value (EV) over earnings before interest, taxes, depreciation and amortisation (Ebitda) at just above nine times, which is the industry average.

According to the announcement, the original cost of investment for the 36% stake was only RM6 million in 2020. Also, SMRT already owns 64% of N’osairis.

Has N’osairis grown so much within the space of three years?

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