Privatisations highlight undervaluation of stocks

The recent moves to take certain public-listed companies private have highlighted to industry observers and investors just how undervalued some companies on the local bourse are.

This is despite the fact that the broader market is seen as one of the most expensive in the region, trading at about 15 times price-earnings ratio (PER).

Fund managers and analysts have pointed out that the local market is seen as expensive due to the presence of large (and mostly local) institutional funds and shareholders, which focus mostly on the largest capitalised as well as government-linked companies.

They note that this has resulted in a two-tiered market with the top 30 companies commanding the highest market valuation, and most of the market trading at far lower valuations. There are nearly 1,000 companies presently trading on Bursa Malaysia.

This fact was also highlighted at The Edge Billion Ringgit Club, which was launched by The Edge in July 2010, to recognise the biggest and best of corporate Malaysia.

The Edge Billion Ringgit Club groups together companies with at least RM1 billion in turnover or market capitalisation.

For its inaugural year, The Edge Billion Ringgit Club has 163 members. While this represents only 17% of the total number of companies listed, their combined market capitalisation is equivalent to 88% of the total on Bursa Malaysia.
Based on The Edge Financial Daily’s calculations of seven of the proposed privatisation moves so far this year, investors who had bought into MEASAT Global Bhd at the start of the year would have stood to gain the most — a whopping 117.6% — based on the offer price of RM4.20. At the start of the year, it was trading at RM1.93.

The company, which was taken private by tycoon T Ananda Krishnan, has been trading consistently below its book value of RM5.08 as at March 31, 2010.

The next biggest gainer was Malaysian Mosaics Bhd, which was proposed to be privatised at RM2.30. An investor who bought it at the beginning of the year, when it was trading at RM1.19, would have almost doubled his or her investment.

Meanwhile, even the worst-yielding gains — that of Southern Steel Bhd (SSB) — would have been 4.1%. The mandatory general offer to acquire SSB was made by tycoon Tan Sri Quek Leng Chan via his special-purpose vehicle Signaland Sdn Bhd.

In terms of price-to-book-value, the most undervalued stock is that of The New Straits Times Press (M) Bhd at 0.57 times.

This article appeared in The Edge Financial Daily, August 2, 2010.