Thursday, April 20, 2006

Go North, life is peaceful there.

The Singapore market barometer, the STI, hit an all time high today. Several key bourses around the region such as the Korean KOPSI also posted multi year highs. If the foregoing is not a sign of a crowded room, what is? It's hard to find quieter spaces these days in markets of such exuberance that our approach almost appear to be a damp [although some might say: damn because no oil counters were ever pitched] squid.

With the market going through the roof daily, it may be tough to mine for value in Singapore but it may simply mean the filters have to work harder. But for the first update in April, it may be most worthwhile to look up north to Malaysia where things are quieter. Unlike the Pet Shop Boys who suggested that folks go west, we head north instead from little Singapore across the borders. As we drive up on the roads into the bustling capital of Kuala Lumpur, the Kuala Lumpur Karak Highway will come into sight. The highway, known to locals as KLK, is a 60km artery road linking the Klang Valley to Karak Town.

You pause to check if you have surfed into a wrong site or examine whether Margin of Safety has lost its bearings and is now a travel site. No, the focus has not changed. KLK is one of the concessionary highways held by a listed Malaysian company named MTD Infrastructure. MTD Infrastructure is, in turn, owned by MTD Capital. There are two other listed companies in the MTD Capital umbrella - Metacorp and ACPI [Now it seems normalcy has resumed to the blog]. Hence, MTD Capital is effectively an investment holding company with interests in construction, civil engineering, property development and infrastructure operations. Using figures from the 2005 annual reports of these companies, a sum of parts valuation of MTD Capital was attempted.

Stakes in listed companies

MTD Infrastructure (75.7%, RM1.18) - RM991 mil

Metacorp (22%, RM0.225) - RM34 mil

ACPI (22%, RM1.10) - RM97 mil

MTD Capital also has RM190 mil of cash balances and non current liabilities of RM620 mil. Erring on the side of conservatism, no valuation is placed on its non current assets which, if you were to examine its annual report, are a hefty number! After adjusting for its outstanding warrants [due in May], one would arrive at a diluted revised NAV per share is approximately RM2.47.

The current market price of MTD is RM1.88. On this very strict back-of-the-envelope calculation, this translates to a discount of approximately 25%. Depending on your assumptions or imputation on the value of fixed assets, one could be looking at a diluted revised NAV per share of up to RM3.90! Finding steep discounts for holding companies reminds one of WBL, another conglomerate which was featured in Sept 05. At last count, the Singapore listed WBL has popped up a whopping 110% from our feature date.

It appears that the macro picture augers well for the MTD group. The government has recently announced the 9th Malaysia Plan that sees an equity infusion of over RM200 billion into projects all over the country. Analysts are estimating that infrastructure projects [construction of roads, highways, airports expansions and refurbishments, etc] will be allocated to the tune of RM37 bil. MTD Capital, being a major player on the construction scene is expected to benefit.

[For the record: MTD Capital: RM1.88, MTD Infrastructure: RM1.18, Metacorp: RM0.225, ACPI: RM1.10]



Blogger gsg said...

hi mr market, any clue why MTD capital is on a down trend?


12:19 PM  

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