Utusan’s wet-dream deal – genius, luck
or…?
STORY BY
KHAIRIE HISYAM
KHAIRIE@KINIBIZ.COM
In a span of eight months, a little
piece of investment by Utusan Melayu has skyrocketed in value beyond
every sensible investor’s wettest dreams… but how?
In case you missed it, on Dec 21, 2015 loss-making Utusan Melayu (M) Berhad
announced what may seem a strong candidate as any for deal of the year – it is selling a
20% stake in a private company for what is essentially 47,900% return on investment
after just eight months.
By any measure this stunning gain is a great boon to Utusan, which has been staring at
nine consecutive quarters in the red. For the latest concluded quarter ended Sept 30,
2015, the company recorded a pre-tax loss of RM7.85 million as revenue slipped 18%
year-on-year to RM61 million.
According to the terms of the deal announced to Bursa Malaysia, Utusan will get RM5
million upfront after the share sale agreement is inked with the balance to be paid by the
end of the second quarter of 2016. Looks like we can expect a bumper second quarter for
Utusan, eh?
But hang on, its shareholders – and the rest of Bursa Malaysia citizens, eager to pick up
great investment tips – may say. How did Utusan accomplish this stunning feat and
what company did the stake pertain to? That’s where things get a little weird.
The company is called Maqamad Sdn Bhd, which according to public records is involved
in property development and general trading. In a regulatory filing, Utusan said its
original cost of investment for the 20% was RM100,000 incurred in April 2015 and it is
now selling that stake to the majority shareholder of Maqamad for a whopping RM48
million.
That buyer is MHA59 Sdn Bhd, which is 90% owned
by one Mohd Hassan Bin Abu who is also one of only two directors in Maqamad.
MHA59 Sdn Bhd is buying over this 20% to “assume full control of Maqamad”, said
Utusan.
Well, then, for MHA59 to be paying RM48 million for a stake that cost only RM100,000
just eight months prior, the company must be an outstanding cash cow that had seen an
amazing turnaround in fortunes since Utusan forked out its RM100,000, no?
We don’t quite know, though. Latest available records from the Companies Commission
of Malaysia show that Maqamad posted a revenue of RM163 (yes, no zeroes missing
there) for the 2013 financial year ended Dec 31, 2013 (FY13) with a net loss of
RM523,880.
For the previous financial year, FY12, Maqamad was deeper in red with RM1.77 million
in net loss compared to RM297 (again, just three digits) in revenue. Reserves are in
negative territory at –RM2.3 million as at FY13.
It is not immediately known how Maqamad performed financially for FY14 – by right its
annual report should be tabled by June 30, 2015 but is not yet available from the
Commission.
This leaves a very, very (very) faint possibility that Maqamad had somehow turned
things around rapidly in the space of 12 months, such that its equity value skyrocketed
beyond every investor’s wettest dreams and the gains from which Utusan is now
reaping.
And if that is the case then it would have been an extremely remarkable turnaround
indeed. One that CEOs of distressed companies everywhere may do well to learn from.
Because the dismal revenue against gaping losses seen in FY12 and FY13 aside, as of
FY13 Maqamad only had over RM23,000 in current and non-current assets against
RM1.82 million in current liabilities.
So how? Obviously MHA59 and its shareholders must have thought that the 20% equity
is worth RM48 million for some reason or another – the payment was arrived at on a
willing-buyer-willing-seller basis, according to Utusan’s declaration to the stock
exchange.
At this stage we can only guess without knowing if Maqamad had indeed accomplished a
stunning reversal of fortunes in FY14. Perhaps it did and Utusan just got really, really
lucky to have picked this particular company to invest in.
Warren Buffett
Or maybe it wasn’t luck after all. What about the possibility that Utusan has been
harbouring the Malaysian answer to Warren Buffett all this while? Possible, possible…
the possibilities are endless. Numbers don’t lie and Utusan really is selling what it says
was worth RM100,000 eight months ago for RM48 million now.
With an investment manager able to pick out an investment giving 47,900% in returns
within an eight-month timeframe lurking in our midst, perhaps Khazanah
Nasional extended the contract of its managing director Azman Mokhtar a tad too
hastily, eh?