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Monday, September 29, 2014

Yu picks up shares in MUI (Edge)

Tan Sri Khoo Kay Peng’s Malayan United Industries Bhd (MUI) has received a well-regarded investor just as the group is said to be exploring the divestment of its crown jewel in London to unlock value.

MUI’s 2013 annual report, published on June 4, 2014, listed Datuk Dr Yu Kuan Chon as one of its top 30 shareholders, with 44.63 million shares or a 1.53% stake as at April 28, 2014. Yu’s name did not appear anywhere in MUI’s 2012 annual report, which means he could have purchased the shares between the second half of 2013 and earlier this year.

The value of Yu’s holdings is small at RM11.4 million, based on MUI’s share price of 25.5 sen last Friday, but the fact that it is held by Yu has turned heads.

Yu, who is chairman of YNH Property Bhd, is regarded as a shrewd investor. He managed to block an attempt by tycoon Tan Sri Quek Leng Chan to privatise Hong Leong Capital Bhd (HLCap) last year, as he believed the value of HLCap was higher than what Quek had offered.

Now, Yu’s investment in MUI, a diversified group of which Khoo owns 47.67%, has managed to stir interests. Although MUI is still barely profitable, its share price rose from a trough of 19 sen in June this year to as high as 28.5 sen last month.

Market sources familiar with MUI said Yu could have been attracted to the inherent value in the group.

For instance, MUI’s Corus Hotel in Jalan Ampang, sitting on 78,500 sq ft of prime land opposite the Petronas Twin Towers, is carried at a net book value (NBV) of only RM60.5 million, or RM770 per sq ft (psf), whereas land in the KLCC vicinity had reached as high as RM3,000 psf.

Nevertheless, the main appeal of MUI lies in its chain of hotels in the United Kingdom that have not been revalued for many years.

Notably, its crown jewel, the 390-room hotel known as Corus Hotel Hyde Park at Lancaster Gate, London, which sits on 21,640 sq ft of freehold land, is carried at a NBV of only RM257.5 million. MUI acquired the property in 2001.

It would appear that Khoo is finally looking to sell Corus Hotel Hyde Park. According to an article posted on a UK property news website in July, MUI is said to have appointed Debutesq Group, a luxury real estate firm, to sell the property for £200 million (RM1.06 billion).

If the sale materialises, analysts said, the “surplus” of close to RM800 million could serve to pare down MUI’s total borrowings of RM893.5 million as at June 2014, and “finally let its profits shine through”.

Such hefty borrowings, compared to the group’s total equity of RM762 million (excluding minority interests), resulted in a finance cost of RM52.6 million in the financial year ended December 2013, which wiped out a majority of MUI’s RM54.9 million operating profit.

Meanwhile, a surplus of close to RM800 million could also double MUI’s shareholders equity to RM1.56 billion or 53.3 sen a share, from 26 sen per share currently. MUI was traded at 25.5 sen last Friday, with a market capitalisation of RM747.8 million.

“Khoo is now 75 years old. It is a matter of time [before] he wants to unlock the value of assets in MUI, clean up its books, and leave a good legacy,” said an analyst, who added that MUI is also looking to dispose of some of the restaurants in the UK.

MUI owns and operates nine hotels and two restaurants in the UK and two hotels in Malaysia, most of which operate under the “Corus” brand.

Apart from the hospitality business, MUI controls 94.52% of department store operator Metrojaya Bhd, 35.17% of London-listed Laura Ashley Holdings plc (market capitalisation of £195.8 million), and major stakes in MUI Properties Bhd, Pan Malaysia Corp Bhd (foodstuff manufacturing), Pan Malaysia Holdings Bhd (diversified), Pan Malaysia Capital Bhd (stockbroking and financial services) and so on.

On its London assets, property market observers said it won’t be difficult for MUI to fetch £200 million for Corus Hotel Hyde Park, given upbeat investors’ sentiments on London hotels, especially with growing interest from wealthy Chinese investors as well as sovereign wealth funds in the Middle East.

According to a Hodges Ward Elliott report on “2013 European Hotel Transactions” dated March this year, the UK remained the most liquid hotel investment market, with transaction volume totalling £3 billion. ..

Interestingly, Tan Teng Boo’s had in a 2008 newsletter valued MUI’s Corus Hotel Hyde Park at a market value of close to RM600 million then.

MUI’s gearing has decreased over the years, total borrowings dropped from RM1.33 billion in 2009 to RM894 million as at June 2014, as Khoo commits himself to putting his house in order.

In MUI’s latest annual report, Khoo said he is confident the group “is on the right course as it continues to restructure its business model and strategy as well as pare down its bank borrowings to ensure a strong balance sheet”.

For Yu, it is not just MUI that he has shares in, as he is also holding shares in MUI’s listed subsidiaries, with a 2.41% stake in MUI Properties, 0.19% stake in Pan Malaysia Corp, and 5.46% stake in Pan Malaysia Holdings.

Market observers linked Yu’s “asset play” style of investment in MUI to his investment in Shangri-La Hotels (M) Bhd back in 2011, besides the more recent move on HLCap, which made him famous.

“Shangri-La’s share price gained some 160% since he (Yu) emerged as a substantial shareholder in 2011,” said a broker. ..

Ultimately, MUI has rich assets, but a long-overdue sum of RM392.9 million, which has been owed to the group for over 10 years by some parties, remains an issue in corporate governance.

In an update last month pertaining to the sum owed, MUI said the “liquidation of the debtors’ estates is still ongoing”, without further elaboration.

This article first appeared in The Edge Financial Daily, on September 29, 2014.

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