08-10-2007: MUI counters up on turnaround story

KUALA LUMPUR: The MUI group has stirred some interest lately, with several counters surging in active trade on market expectation of the group turning around to be on stronger financial footing.

Last Friday, Malayan United Industries Bhd (MUIB) surged 13 sen or 6.8% to 50 sen, the highest since April 22, 2002 when it also closed at 50 sen. On Friday, it was the volume leader with 143.38 million shares transacted.

Pan Malaysia Industries Bhd (PMI), which holds 46.56% of MUIB, jumped two sen to 10 sen, while MUI’s 68.17%-owned Pan Malaysia Holdings Bhd (PM Holdings) rose eight sen to 26 sen. MUI Properties Bhd rose 4.5 sen to 28 sen.

Industry observers said there could be a turnaround story in MUI group, especially MUIB, as it gets back on a stronger financial footing through its restructuring to pare down its debts to RM1.4 billion as at June 30, 2007 from RM3.5 billion in 2003.

The disposals involved sale of assets including MUI Plaza headquarters in Kuala Lumpur, equities in Malaysian-listed companies and overseas assets including hotels and insurance business.

MUIB had been out of analysts and investors’ radar screen over the past 20 years. In the early 1980s, it was trading as high as RM24 per share.

Currently, the group is in the final stage of its group-wide restructuring, with the last company in the group being PMI. In October last year, PM Holdings and MUI’s indirect associate Pan Malaysia Capital Bhd regularised their financial conditions.

PMI had in mid-September proposed to dispose of a 26.5% stake in MUIB or 515.4 million shares for RM154.6 million under a restricted offer for sale (ROS) to reduce its RM190 million debts.

PMI holds 46.56% comprising 903.49 million MUIB shares and under the corporate exercise, it would sell 26.5% of its MUIB stake or 515.4 million at 30 sen apiece.

MUIB is controlled by a low-profile Tan Sri Khoo Kay Peng, who owns 48.52% or 941.49 million shares in MUIB. Khoo and companies controlled by him have indicated their willingness to fully subscribe to any unsubscribed offer shares under the ROS.

The observers said PMI’s exit from Practice Note 17 would enable Khoo to consolidate the diversified businesses of the once high-flyer MUIB and PMI -- both which had been largely ignored by investors -- under MUIB ultimately.

PMI’s main asset was the MUIB stake after it sold its main asset, comprising 91.06% interest in Metrojaya Bhd (MJB), which reduced its borrowings to RM190 million. After the sale, PMI does not have any core business.

“Companies under the group could be consolidated to enhance their value with MUIB being the ultimate holding company,” said an industry observer, adding there were too many listed underperforming companies in the group.

They also said MUIB has been reducing its losses. In the second quarter ended June 30, 2007, the net loss was RM6.79 million compared with RM16.07 million a year ago. Net asset per share was 42.14 sen.

In the second quarter, MUIB had repaid RM105.49 million in borrowings, reducing its debts to RM912.71 million. Despite the repayment, as at June 30, 2007 it still had assets totalling RM2.82 billion and cash and cash balances of RM533.51 million.

After the acquisition of the Metrojaya stake from PMI, MUIB is expecting its retailing division to be further strengthened and would contribute to group revenue and earnings.

Industry observers said MUIB’s UK retailing operations under Laura Ashley Holdings plc had reported encouraging growth in its sales and margins while Metrojaya was profitable.

According to Laura Ashley’s latest earnings for the 26 weeks to July 28, 2007, it recorded sales of £113.9 million (RM793 million) while profit before taxation was £6.4 million.

“When the MUIB loans are taken care of, we will see an increase in the value of the group,” said an observer, adding that the company could be in the black by 2009.