Friday, 21 June 2013

Pearl City 100% Belongs To Tambun Indah

On the 21st June 2013, both Tambun Indah & Nadayu have their share trading suspended. 

Nadayu owns 30% & 40% in Tambun Indah Land Berhad's subsidiaries Tambun Indah Development Sdn Bhd. & Palmington Sdn Bhd. respectively.

When both companies have something to announce at the same time, it must be related to the matter above. The Edge reported a possible merger between Tambun Indah & Nadayu. Fortunately it is not a truth. As a minor shareholder of Tambun Indah, you don't want to merge with a badly managed company (though it carries quite a lot of landbank in Klang Valley).

Nadayu is previously called Mutiara Goodyear who first developed a township in Simpang Ampat, Seberang Perai Selatan called Bandar Tasek Mutiara in the early 90s. Later Mutiara Goodyear's major shareholder left and sold its shares to ATIS/Zhuojian, who then changed its name from Mutiara Goodyear to Nadayu.

After that, Nadayu sold its land at Bandar Tasek Mutiara to Tambun Indah, in which a JV 60:40 Palmington Sdn Bhd was formed to develop it. Tambun Indah has then successfully developed the land so far, with the target to turn it into an integrated township called Pearl City.

       Bandar Tasek Mutiara master plan by Mutiara Goodyear

So if it is not a merger between the two, then it must be related to these companies. True enough, both companies announced that Nadayu will sell its remaining shares of 40% in Palmington & 30% in TID to Tambun Indah (TILB). The purchase price is RM112 million and will be settled with RM40.7 million of cash & 55 million new Tambun Indah shares at RM1.30 each.

Pearl City development projects have been Tambun Indah's current & future profit generator as a big chunk of revenue (60% in 2012) and landbank come from here. So if you realize that Tambun Indah will only enjoy 60% of the potential of Pearl City, then it is some kind of setback. If the proposed sales & purchase go through, then Tambun Indah can expect better earning in the future by owning 100% of Pearl City.

       Pearl City Business Park

At the same time, Tambun Indah also announced a proposed private placement of 15 miilion (4.7%) new shares. Together with Nadayu's 55 million (17.3%) new shares, earning will be diluted by about 22%. Nadayu will become a major shareholder in Tambun Indah.

Nevertheless, the issuance of new shares should be justified, as it is not easy for a small cap company to fork out more than RM100 million (Tambun Indah has RM94 million cash). Too much bank borrowing is also not very good, though currently Tambun Indah has a very low gearing. With its earning potential after the purchase, Tambun Indah may earn more to maintain or even improve its earning per share.

       Tambun Indah first project in Pearl City - Pearl Garden in progress

Back to Nadayu, in year 2011 its boss said that the company is confident to achieve RM500-600 million of sales in 2011 & 2012. The outcome is, it only manage to sell RM175 million in each of these 2 years when almost all property developers' revenue and earning soar. Its net profit stood at RM15.8mil & RM9.6mil for the past 2 years.

According to news, Nadayu's major shareholders plan to privatise Nadayu with RM1.39 per share. With the cash from the disposal of its associates, Nadayu can concentrate on other property development projects, while still able to benefit from the development of Pearl City by holding 15% of Tambun Indah's shares.

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