CIH to distribute up to 90% of Permanis sale proceeds

KUALA LUMPUR: CI Holdings Bhd (CIH) is looking at distributing no less
than half of the RM820 million proceeds from the sale of its bottling
unit Permanis Sdn Bhd to Asahi Group Holdings Ltd, said its management.

“We
may use a portion of the proceeds to acquire new businesses. Based on
current proposals, these new acquisitions could only cost between RM20
million and RM80 million, so there is still a large portion to give back
to our shareholders,” CIH managing director Datuk Johari Abdul Ghani
told The Edge Financial Daily last Friday.

“But if we cannot find
a suitable business to acquire, it is likely that we will distribute
90% of the proceeds to shareholders,” he said.

The sale of
Permanis, if successful, would turn Permanis from having a net debt of
RM105.15 million as at March 31, 2011 to a net cash of RM714.85 million,
translating into a net cash per share of RM5.03 based on CIH’s
outstanding issued share capital of RM142 million of RM1 share each.

A
distribution of half or up to 90% of the proceeds would translate into a
cash payment of between RM2.89 and RM5.20 per share to shareholders.

Johari
emphasised that it was not necessary for CIH to acquire a new business
as it would still be able to stand on its subsidiary Doe Holdings Sdn
Bhd, which manufactures and trades taps and sanitary ware.

But if
CIH does, however, decide to look for new businesses, the acquisition
may not necessarily have to rely on proceeds from the Permanis sale,
said Johari, adding that the company could still call for other methods
of fundraising.
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Johari,
who owns 30% of CIH, said the company may be eyeing small-to-medium
entities within the manufacturing sector and turn them around, as it
did with Permanis.

“We have had good experience with Permanis
and we have proven our ability to drive the successful transformation of
our investee companies, and we aim to explore opportunities to
replicate this,” said Johari.

Permanis revenue rose to RM479.9
million in FY10 ended June 30, from RM248.1 million in FY05. CIH
acquired Permanis in 2004 for RM72 million, and now sells it for an
amount that is 11.4 times its original cost.

“If a company [a
potential target for acquisition] is in trouble, we may enter and fix
things, then take things from there, or if there has been a block to its
potential to grow, we will rectify this. We want to buy it cheap and
grow it,” Johari said on potential new investments for CIH.

CIH
won’t be able to jump into another beverage venture soon. The deal with
Asahi includes a non-compete clause prohibiting CIH from engaging in the
manufacturing and distribution of ready-to-drink beverages in Malaysia
for three years, following completion of the sale of Permanis.

Permanis
has bottling rights to manufacture and sell PepsiCo’s beverages brand
in Malaysia until 2020, a factor likely to have contributed to the final
price agreed by Asahi, which is about 37% higher than the previously
reported price of RM600 million.

On whether CIH is looking to
invest more capital to expand Doe, Johari said: “We don’t think our tap
business requires anymore capital, it is performing well on its own.”

For
3QFY11 ended March 31, the group’s tap and sanitary ware division
turnover rose 35.2% to RM10.7 million from RM7.9 million the year
before. Its contribution to CIH’s total revenue increased to 7.6% from
5.7%.

Following early speculation of the Permanis sale, shares in
CIH rose to a 10-year high of RM4.08 last Wednesday, prompting the
company to suspend trading in its shares last Thursday. It resumed
trading last Friday and closed at RM4.61, with 5.07 million shares done.


Asahi has allocated ¥400 billion (RM15 billion) this year for
acquisitions in a bid to increase its overseas sales to between 20% and
30% or ¥2 trillion to ¥2.5 trillion.

MIDF Research revised its target price for CIH to RM5 from RM3.92.

“We
are adopting sum-of-parts to better reflect the valuation of CIH. We
are valuing the sanitary ware division at five times PER (price-earnings
ratio) FY12 earnings, which we deem reasonable given the much lower
contribution to its bottom line.”

OSK Research raised its fair value for CIH to RM5.77 from RM4.30.

“While
we raise our fair value, we advise investors to take profit and sell
into strength given some small uncertainty still on whether the deal
will proceed and over how CIH would utilise its huge cash proceeds,
though it has had a track record in growing Permanis,” said the research
house.