Focal, Salcon & SPSetia- Liew goes a wandering

Focal Aims Holding Bhd ('Focal') has announced that its major shareholders had signed a conditional share sale agreement with Eco World Development Holdings Sdn Bhd ('EWDH') and Liew Tian Xiong for the sale of 164.78 million shares in Focal (representing 65.05% of Focal's outstanding shares) at RM230.69 million (or RM1.40 apiece).

EWDH is expected to be the vehicle for Liew Kee Sin of SPSetia to carry on his property development business after his retirement from SPSetia which is expected in 2015. EWDH's current shareholders consist of Liew's close associates, such as Abdul Rashid Abdul Manaf and Eddie Leong as well as Liew's son, Liew Tian Xiong.

The entire exercise involved the share purchase agreement as well as the injection of EWDH's 1214 ha land in Iskandar into Focal. That piece of land was acquired at a cost of RM600 million. Focal, an unprofitable developer until recently, also has sizable land bank in Johor. This includes 1011 ha of land in Kota Masai township in Iskandar as well as 426 ha of land in Plentong, Johor Baru. For more on the Focal and the share deal, go here.

My take on this deal:

1) I think the reason why EWDH bought into Focal is because of Kota Masai. If you read the Chairman's Report in Focal Annual REport for 2012 (Page 10), you will come across this paragraph:

The major infrastructure works such as Desaru Bridge, Lebuhraya Persiaran Pantai (“LPP” - also known as 2nd Pasir Gudang Highway), Eastern Dispersal Link (“EDL”) and the Coastal Highway were completed during the financial year under review. The completion of all these highways and bridges had reduced the commuting time drastically between Kota Masai and the city centre as well as Customs, Immigration and Quarantine (“CIQ”). Basically, the travelling time between Kota Masai and the rest of IM had improved. The old concept of far and away had been blurred and the accessibility within the whole of IM had been enhanced overnight. Such was the common impression of all residents at IM and new target markets and products were made possible. The completion of Johor Premium Outlet (“JPO”), Legoland, Puteri Harbour Family Indoor Themepark (Sanrio Hello Kitty Town and The Little Big Club), myriad of universities and private colleges, and hospitals had transformed and elevated IM to a different level. The physical completion of all these establishments boosted the confidence of locals as well as foreigners.

Those who know about SPSetia's masterstroke in acquiring the land now being developed into Setia Alam & Battersea, will see the same potential of the Kota Masai land for future development. Focal has only recently begun its development in Kota Masai where it launched its Phase 1 during FY2012.

2) I feel that EWDH is paying a reasonable price to acquire Focal. Its NTA is about RM1.26 per share. The Plentong land, a land held for development, was carried in its book at RM303 million (or RM700 per hectare) as at 30/9/2012. The Kota Masai land is reflected in the property development cost totaling RM106 million as at 30/9/2012. This item consists of other land such as the Saujana O-lot but if we assumed that it is made up of only the Kota Masai land, then the book value is fairly reasonable- maybe even cheap.

3) The market was expecting EWDH to tie up with Salcon (as noted here) but the deal didn't materialize. My feeling is that Liew has learned a lesson from his involvement in SPSetia- you must have controlling interest in the company. I think the existing shareholders of Salcon were not agreeable to sell of their stake and as such, EWDH only entered into a JV with Salcon.


Chart 1: Focal's monthly chart as at Sep 17, 2013 (Source: Quickcharts)


Chart 2: Salcon's monthly chart as at Sep 17, 2013 (Source: Quickcharts)

Should I get into Focal or Salcon now?

Since Focal has gone up so much, I think it is not worth the risk to buy into that stock. EWDH will be conducting a due diligence on Focal's books and anything can happen. Remember the Naza group's proposed acquisition of Kumpulan Jetson? So, it is safer to wait for the deal to be consummated.

Salcon may be a safer stock to consider even though it is the "rejected bride". It has disposed off its water assets in China for RM518.3 million (here). There is a potential for a special dividend. In addition, it is getting into property development game with Eddie Leong, an associate of Liew, probably leading the team. All in all, Salcon is a cheaper & smaller version of Focal.

What about SPSetia?

With Liew's imminent departure from SPSetia, the stock gives a feeling that it has seen better days. But, wait a minute, the stock is still in an uptrend. I do not expect the stock to charge up anytime soon since it is probably under selling pressure by shareholders who fear that the group may not do well after Liew's departure. From the chart below, I believe that SPSetia will likely to stay above the RM3.00 mark. An upside breakout of the intermediate downtrend line ('cc') at RM3.50 will put the stock above the line of best-fit ('XY') and could signal the recovery for SPSetia. Hang onto SPSetia.


Chart 3: SpSetia's monthly chart as at Sep 17, 2013 (Source: Quickcharts)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Focal, Salcon & SPSetia.