CI Holdings lands sweet deal

KUALA LUMPUR: CI Holdings Bhd has landed a sweet deal for the sale of
its bottling unit, Permanis Sdn Bhd, to Asahi Group Holdings Ltd for
RM820 million.

In a filing with Bursa Malaysia yesterday, the
group announced that it had signed a definitive agreement with Asahi
Group Holdings for the sale of Permanis, which is a leading beverage
manufacturer in Malaysia.

CI Holdings said it is expecting to
realise a pro forma gain of RM677.1 million from the disposal. Its
original cost of investment in Permanis was RM72 million, and this was
incurred in April 2004. So, this would translate into a return on
investment (ROI) of about 11.4 times once the deal is completed.

CI
Holdings said the board believed the proposed disposal was timely and
provided the opportunity for it to unlock the value of its investment in
Permanis at an attractive valuation. It said the board is currently
deliberating what to do with the proceeds. It could either use the money
to acquire new businesses or assets, pay out a dividend to its
shareholders, or both.

“It is intended that any utilisation proposed will be with the objective of maximising shareholder value,” said CI Holdings.

In
another statement, CI Holdings said it has proven its capability to
drive the transformation and growth of Permanis and is planning to
“replicate its successes through new investments”.

Permanis’
revenue rose 93% to RM479.9 million for FY10 ended June 30, from RM248.1
million in FY05. Its profit before tax rose 323% to RM41.3 million from
RM9.76 million during the same period.

“We believe that Asahi’s
existing relationship with PepsiCo in Australia and its strength and
impressive global beverage track record will combine well with Permanis’
local expertise and will bring Permanis into its next phase of growth
and success,” said CI Holdings managing director Datuk Johari Abdul
Ghani.

To recap, CI Holdings’ share price has surged 50% since
the beginning of June due to speculation that it was selling Permanis to
Asahi for US$200 million (RM600 million). However, CI Holdings had
alluded to the fact that the offer price of RM4.23 per share by Asahi
was not reflective of Permanis’ value.

Trading in CI Holdings
shares was suspended on Tuesday before it announced the deal on Bursa
yesterday. CI Holdings hit a 10-year high of RM4.08 before its
suspension and trading in its shares will resume today.

Attractive valuations in Permanis deal
Analysts
have reacted positively to the deal as Permanis has been priced
attractively. The RM820 million deal is 24.6 times Permanis’ profit
after tax of RM33.28 million for FY10. Based on Permanis’ net assets of
RM95.42 million as at March 31, 2011, the deal has a price-to-book
valuation of 8.59 times.

Permanis contributed RM33.3 million or
23 sen per share to CI Holdings’ consolidated earnings for FY10.
“Assuming the net cash consideration from the proposed disposal (after
deducting estimated expenses) is placed in an interest-bearing deposit
account with a licensed financial institution at an interest rate of 3%
per annum, CI Holdings would derive a net interest income after tax of
RM18 million or 13 sen per share per annum,” said CI Holdings in the
statement.

An analyst said CI Holdings could possibly see its
earnings grow to RM24.36 million for FY12 ending June 30, based on the
RM18 million interest gained from the sale, and another RM6.36 million
from its other wholly-owned subsidiary Doe Industries Bhd, which posted a
profit after tax (PAT) of RM4.77 million for its nine-month period
ended March 31.

“Based on its total outstanding 142 million
shares, CI Holdings’ earnings per share (EPS) could come up to 17.2 sen
for FY12,” he said. CI Holdings’s EPS for FY10 was 26.85 sen.

He
added that after paying off its net debt of RM105.15 million as at
March 31, CI Holdings would end up with net cash of RM714.85 million.

“The
company’s net cash per share alone would be RM5.03 per share which is
higher than its last price of RM4.08. As such, there is certainly an
upside to CI Holdings,” he said.

However, he noted that CI
Holdings would most likely use a part of the proceeds to acquire new
businesses and assets. Post-disposal, CI Holdings would be principally
involved in manufacturing and trading of taps and sanitary ware through
Doe Industries.

It is believed that Asahi bought Permanis for
its wide distribution network. However, the deal will still need the
green light from CI Holdings shareholders as well as PepsiCo to maintain
the Pepsi bottling agreement. In July last year, CI Holdings renewed
its franchise bottling rights to manufacture and sell PepsiCo’s
beverages brand in Malaysia until 2020. CI Holdings has been the
franchisee for PepsiCo since 1973.

Earlier this month, OSK
Research said it would not be easy for PepsiCo to give the green light
as there are overlaps in the products of both parties. “Asahi’s
aggressive acquisition trail would substantially enlarge its beverage
portfolio, which may in turn increase the likelihood of product
duplication, as well as divert Asahi’s focus from Pepsi products,” it
said.