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Wednesday, November 10, 2010

My take on AZRB and EPIC (Amended)

My guess is EPIC will be a privatization target. Terengganu govt won't stop at owning over 60% and not make a GO. It makes very good sense for them to privatise as EPIC is a cash cow. Around RM250mil++ of borrowings (Accounting for their net cash position) could help Terengganu govt to privatize the whole company (To buy another 60% of EPIC shares since they're owning 40%). Less than 5 years of EPIC earnings could easily pay off its entire debts.

As for AZRB, unless AZRB is paying a bumper dividend or invest in a business at least same or more profitable than EPIC, I see little upside to its stock price. Without EPIC, AZRB will lose about RM10-12 million of profit p.a. from its stake in EPIC, thus potentially making its PER very high. Though AZRB has 40 sen per share of cash if EPIC sale goes through, I'm afraid it'll end up the same as Fajarbaru with a lot of cash but have no idea what to do with it.

For me, EPIC will be a better bet. Will the share price shoot up to more than RM3? Hopefully :))

See previous related post.

PS: The RM10-12 million is not a loss. Rephrase: AZRB will earn RM10-12 million lesser p.a. if its 21% stake in EPIC is sold since EPIC is earning RM50-60 million p.a. The RM10-12 million p.a. is not the borrowing costs :)

5 comments:

  1. David,

    AZRB funded the purchase of the EPIC shares via an RM85m loan from the bank which are secured at 7.13-7.63%/year. That is close to RM6.5m per year of interest serviced. So it is more like losing RM6m max instead of RM12m. Furthermore, AZRB is about to wrap up their lucrative RM400m PFI teaching hospital which generates recurrent income. And not to forget, AZRB's plantation arm will start to contribute from 2011-2012.

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  2. Ya. Agree with you on AZRB's prospects :) As for the loan, they serviced it for about 3 years already, so might be about RM18.5m. Hmmm...My view is more on a shorter term outlook. As for AZRB, I believe they might have something on the cards with regards to the cash that they have. It's just that we do not know at this juncture. Could be a good one :)

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  3. David,

    can we exchange blogs?

    http://talkaboutsharesmarket.blogspot.com

    TQ
    Jim

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  4. Hi Jim. Yes..sure. I'll include yours to my local blogs section. The more the merrier :)

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