ECM a potential M&A candidate?

One major player in the stockbroking industry that has often been rumoured to be a merger and acquisition (M&A) candidate is ECM Libra Financial Group Bhd.

The investment bank, which was formed through a merger between ECM Libra Bhd and Avenue Capital Resources Bhd, had its heydays during the administration of former Prime Minister Tun Abdullah Ahmad Badawi, but has since adopted a relatively low profile.

Back then, it was involved in high-profile corporate deals such as the RM1.113 billion divestment of Killinghall (M) Bhd’s entire stake in Southern Bank Bhd, the listing exercise of AirAsia Bhd, Starhill REIT, and Parkson Retail Group Bhd, among many others.

In the last couple of years, there had been market speculation that the company was up for sale, or was seeking a strategic foreign partner.

No corporate developments have since emerged, which some said was due to pricing.

Based on last week’s closing of 69 sen, ECM Libra has a market capitalisation of RM573.3 million. Its shares are trading substantially below their net asset value (NAV) per share of RM1.20.

Most stockbroking groups are trading below their net asset value, partly due to the presence of sizeable intangible assets due to goodwill from earlier acquisition exercises.

ECM Libra has high intangible assets, amounting to RM284.5 million. Excluding these intangible assets, ECM Libra’s net tangible assets (NTA) per share is estimated at 85.7 sen, which some quarters opine is the fair value of ECM Libra.

But, its shareholders may beg to differ as what the stock’s actual fair value is. After all, goodwill represents the sum spent when buying out other assets above their NTA.

Veteran banker Tan Sri Azman Hashim is the single largest shareholder of ECM Libra, holding 23.5%; the co-founders Lim Kian Onn and Datuk Seri Kalimullah Masheerul Hassan own 9.48% and 3.97%, respectively. Interestingly, Lim stepped down from the group’s managing director post early this month. He is now the non-executive director.

In February, Kalimullah, who was the chairman and executive director, was redesignated as the group’s chairman and non-executive director.

The boardroom changes prompt market gossip that corporate exercises may be brewing in the investment bank.

Fundamentally, ECM Libra appears to be a relatively attractive and cash-rich company. At 69 sen, its shares trade well below their net asset value per share of RM1.20 and even NTA per share of 85.7 sen after deducting goodwill.

As at April 30, the investment bank had net cash of RM478.8 million or about 58 sen per share.

For the financial year ended Jan 31, 2010, ECM Libra’s net profit jumped several folds to RM40.8 million or 4.99 sen per share, from RM5.1 million or 0.62 sen per share the year before.

Net profit ballooned nearly 48% to RM7.25 million from RM4.9 million for the first financial quarter ended April 30, 2010, while earnings per share rose to 0.9 sen from 0.6 sen. Revenue grew to RM33.8 million from RM23.2 million.

“Will the liberalisation of ownership help ECM Libra to find a foreign buyer who can afford and willing to pay the price that is acceptable for its subsbtantial shareholder? The outcome is probably also dependent on whether the shareholders are in a hurry to sell the equity stake or not.”


This article appeared in The Edge Financial Daily, August 16, 2010.