This article first appeared in The Edge Malaysia Weekly on June 3, 2024 - June 9, 2024

MPHB Capital Bhd (KL:MPHBCAP) has largely stayed out of the news since the sale of its insurance business to Generali Asia in 2022. But it made headlines last week as major shareholder Casi Management Sdn Bhd made an offer to privatise the company via a selective capital reduction (SCR) and repayment exercise.

Still, the news was not surprising to those familiar with how the low-profile tycoon Tan Sri Surin Upatkoon works.

“The only counter in his stable of listed companies worth looking at is Magnum Bhd (KL:MAGNUM), the rest he takes private [because of the valuations]. That’s his style,” says an observer.

Casi is the private vehicle of Surin’s family with a 32.92% interest in MPHB as at May 20, which is the latest practicable date  prior to the announcement. Surin himself held an indirect interest of 37.34% in MPHB. Casi, Surin and the parties acting in concert (PACs) have a total of 43.07% of the MPHB shares, excluding the treasury shares.

The proposal announced on May 28 entails an SCR and a corresponding capital repayment of RM1.70 in cash for each ordinary share in MPHB held by all shareholders but excludes CMSB and MWE Holdings Sdn Bhd, which are the non-entitled shareholders. This works out to a payment of RM748.12 million on the 440.07 million shares held by the entitled shareholders.

What are the assets that Surin will be getting if the SCR exercise is approved and completed?

Following the sale of its insurance arm, MPHB has three business segments: credit, investments and hospitality.

The credit segment involves the provision of credit services via Multi-Purpose Credit Sdn Bhd and MP Factors Sdn Bhd. The investment segment comprises land and buildings used for hotel management and the generation of rental income. The hospitality segment involves operating hotels in Kuala Lumpur and Penang.

Only the credit segment is profitable, generating a profit of RM38.6 million for the financial year ended Dec 31, 2023 (FY2023).

In the management discussion and analysis section of MPHB’s 2023 annual report, it highlights a piece of land in Pengerang, Johor, near the Refinery and Petrochemical Integrated Project, an Imbi plot and a joint venture (JV) between its subsidiary Tibanis Sdn Bhd and Pinggir Mentari Sdn Bhd, and a unit of Bandar Raya Developments Bhd in Rawang, as some of the properties it manages under the investment segment.

For the Pengerang land, “An unrelated company manages the oil palm plantation and the group derives its profit share from the plantation”, it discloses.

According to the report, MPHB has 1,663.4 acres in Pengerang, with a group net book value (NBV) of RM58.93 million as at Dec 31, 2023. The updated valuation was done on Jan 15, 2024.

The Imbi land refers to about five acres in Jalan Imbi and Jalan Sultan Ismail in Kuala Lumpur.

“The group intends to strategise [and] evaluate any viable proposals to lease the Imbi land to generate sustainable returns, whilst being on the lookout for potential viable opportunities, either through JVs or outright sale or [the group] may acquire complementary assets to enhance the value of the existing properties,” the group explains in the annual report.

Under MPHB’s list of top 10 properties indicated in the report, five are located in Kuala Lumpur — comprising vacant land and a plot with a four-storey building that add up to about five acres with a total NBV of RM296.86 million.

As for hotels, MPHB manages two of them — Flamingo by the Beach in Tanjung Bungah, Penang, and Flamingo by the Lake in Kuala Lumpur. The hotel in Penang recorded a profit of RM0.3 million for the financial year ended Dec 31, 2023 (FY2023), compared with RM2.3 million in FY2022 due to higher cost of operations. The hotel in KL, however, is loss-making.

While these assets are valuable, the single property with the highest NBV was actually not highlighted in the report’s management discussion and analysis.

From its list of top 10 properties, MPHB’s land in Gombak, measuring a combined 323.95 acres with a NBV of RM137.237 million, is the most valuable, based on NBV. It is believed that Malaysia’s first theme park, Mimaland, operated on the Gombak land from 1971 to 1994.

Apart from the Mimaland parcels, and the Imbi and Pengerang parcels, the list of top 10 properties included land in Rawang, Selangor, and Teluk Tempoyak in Penang, near the second bridge.

All in, these 10 properties have a group NBV of RM769.73 million. All had their valuations last updated in January this year.

Does the offer of RM1.70, which values MPHB at RM1.2 billion, reflect the value of the assets it owns?

According to the offer letter, the offer price is at a 13 sen or 8.28% premium to RM1.57 — the closing price on May 27, just before the letter was served.

As at March 31, 2024, MPHB’s net asset value per share stood at RM2.40. The group had cash of RM66.27 million and no borrowings as at March 31, 2024.

In 2018, Surin took garment maker and property developer MWE Holdings Bhd private, also via an SCR and repayment exercise, at an offer of RM1.75 per share, which valued the group at RM408.15 million. Its net asset value per share just before the offer was made then was RM2.77.

Casi, Surin and the PACs will not be voting on the MPHB SCR.

For the privatisation to succeed, it must be approved by at least the majority of the disinterested shareholders in number and 75% in value in person or by proxy at an extraordinary general meeting. It must also not be voted against by more than 10% of disinterested shareholders.

The board of MPHB has up to June 27 to respond to Casi on whether it is agreeable to implement the proposed SCR.

Meanwhile, MPHB shares have risen to trade close to the SCR offer price and ended the week at RM1.62, valuing the group at RM1.16 billion. The counter, which has risen by more than 50% since March, is now 47% higher than its average trading price of RM1.10 over the past one year. 

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