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Thursday, August 15, 2013

Censof may get Time Engineering stake (Star)

Censof Holdings Bhd, one of three bidders for Khazanah Nasional Bhd’s 45% stake in Time Engineering Bhd, is close to emerging as the winner of the bid, sources said.

Censof is a low-profile information technology (IT) solutions provider, while Time Engineering is also an IT firm that provides solutions for e-commerce and cyber security.

Censof is said to be paying around 18 to 28 sen per share for the Time Engineering stake, which works out to RM63mil to RM97mil in total.

When contacted, Khazanah said it did not comment on speculation.

Sources said that Censof would be paying for the acquisition via cash and equity.

It is understood that the price offered by Censof is within the range of the other offers, all of which are at a discount to the current market price of Time Engineering, which closed yesterday at 30.5 sen.

It is reported that speculators have been chasing up Time Engineering’s share price to above its fair value. Any party buying Khazanah’s stake in Time Engineering will have to make a mandatory general offer for the rest of the shares but that would be a non-event, considering that Time Engineering’s price has far surpassed the bid prices for the company.

Notably, based on the latest quarterly results, Time Engineering’s net tangible asset (NTA) per share is a mere 11 sen.

Sources said Censof may not necessarily have put in the highest bid for the stake but is being chosen because of its suitability to partner with Time Engineering.

It is reported that the other two bidders for the Time Engineering stake are the Skali Group and MyEG Services Bhd.

“There are synergies to be extracted from a combination of product offerings and services (between Censof and Time Engineering),” a source said.

If it wins the bid, Censof would gain access to an enlarged customer base and the integration of systems between both firms.

Time Engineering’s main asset is Dagang Net Technologies Sdn Bhd, which holds a 25-year concession with the Customs. The concession, however, is due to expire next September.

Notably, the uncertainty of Time Engineering retaining the Customs concession is a key factor it cannot be sold at too high a price. “The market price (of Time Engineering) does not reflect that (uncertainty),” said a person familiar with the deal.

For Time Engineering, it would be able to ride on Censof’s strength in financial management software solutions and possibly strengthen its operations from there.

Censof, which has been enjoying a healthy flow of government contracts for decades, saw its shares end up 2.5 sen to 55 sen yesterday.

It recently proposed to undertake a private placement of up to 10% of its capital to raise up to RM17.2mil.

It is understood that some of this will be for the purpose of financing the stake purchase. It had also issued RM100mil worth of redeemable convertible notes a few months ago.

The divestment of the Time Engineering stake is part of Khazanah’s ongoing sale of its non-core businesses. Technology is one of the sectors that it considers non-core.

Earlier this year, Khazanah managing director Tan Sri Azman Mokhtar said the state investment arm would make more divestments this year, one of which will include its stake in Time Engineering. This is after its 10 divestments last year which resulted in proceeds of RM4.8bil.

For the fiscal year ended Dec 31, 2012 Censof made a net profit of RM9.3mil on revenue of RM44.5mil compared with a net profit of RM8.8mil on revenue of RM43.4mil a year earlier.

Time Engineering, meanwhile, suffered a net loss of RM7.78mil on the back of RM144.59mil turnover in the equivalent period.

However, in its latest quarter it made a net profit of RM1.8mil on revenue of RM24.9mil.

An announcement on this stake deal is expected to be made next month.

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