STATE-OWNED Pelaburan Mara Bhd (PMB)’s recent investments in small-cap, penny stocks like PDZ Holdings Bhd and Sanichi Technology Bhd have surprised the market, mainly because such firms are typically below the radar of large institutional funds.
Such funds have tended to invest in larger listed players that seemingly offer stability of earnings.
Group chief executive officer Nazim Rahman says PMB, which started off with a paid-up capital of RM48mil some 20 years ago, is not fixated on investing only in large or medium-cap firms.
While on one hand, he does not want PMB, which now manages RM1.7bil in funds, to be seen as a penny stock investor, he says good value can also be found in small-cap companies such as PDZ and Sanichi.
“We take a broad perspective on the market,” he says. “As an institutional investor, we have a rigorous review process before we proceed to invest.”
Nazim says there are firms that PMB invests in from a strategic long-term perspective, and some that are invested in as part of the funds’ trading activities.
“But when we take substantial interests, it always means that we believe in the potential of the company or there is value that we can help create with our participation,” he says.
PMB emerged in PDZ in April, paying some RM41mil, or an average 18 sen per share, for a 26.83% stake in the company.
At 18 sen per share, the deal raised some eyebrows as it was above the market price of 15.5 sen at the time.
Furthermore, PDZ at that point was a loss-making container shipping firm.
Since then, however, PDZ’s share price has risen to as high as 42 sen and it turned in a small net profit of RM1.9mil for its fourth quarter ended June 30 compared with a loss of RM10.2mil previously.
It is, however, still in the red for its full year although its net losses for FY14 were smaller at RM493,000 compared with RM13.8mil a year earlier.
Notably, at PDZ’s current market price of 34 sen, PMB is sitting on a paper gain of about RM33mil.
Changes have also taken place in the management of PDZ since the entry of PMB.
Nazim was made PDZ managing director on July 18, while more recently, the company has seen the entry of some heavyweights from the oil and gas industry to its board, which include former chairman of Petronas Gas Bhd Datuk Anuar Ahmad and ex-managing director and CEO of Petronas Ammonia Sdn Bhd Anuar Ismail, who have been appointed non-executive directors.
PDZ initially was to become PMB’s main oil and gas vehicle, and it is reported that to this end the company was in talks to buy a stake in a local oil and gas firm but that has apparently fallen through due to valuation issues.
New developments have led to PDZ possibly seeing the entry of a new shareholder to drive the company’s new area of interest – the oil and gas sector.
It has been speculated that the new shareholder could be corporate player Tan Sri Halim Saad, who is also linked to Sumatec Resources Bhd, a firm aiming to be an oil and gas exploration and production operator.
Nazim did not comment on this further but says: “We are finalising a deal with a new party for the sale of a block of shares and will make the relevant announcement once the agreement is in place.”
PDZ is not PMB’s first public-listed investment.
“We have a diverse equity portfolio ranging from small-caps to blue chips but PDZ is the first in which we hold a major stake and in line with our initial objective, is meant to be our long-term strategic investment.”
As for Sanichi, PMB emerged in the precision moulds maker last month with a 5% stake, bought at an average 11.5 sen per share.
It has increased this to 15.33% after buying ordinary rights shares to enable it to subscribe to the firm’s rights shares.
Sanichi, which made a net profit of RM2.25mil for its latest fiscal year, recently obtained shareholders’ approval to move into the property development and investment sector in line with its acquisition of a 8,672 sq m plot of freehold land in Malacca for RM7.7mil.
“In Sanichi, we see a management committed to creating value for the company and we take a medium to long-term view on this investment.
“We believe we will see an increase in the value of our shares,” he says.
Apart from companies, Nazim says PMB invests in multiple assets including the money market, fixed income, real estate, private equity and public markets.
“Our investments are subjected to rigorous review and risk management standards, hence, the strong balance sheet and profitability we have enjoyed over the years.”
Performance-wise, for FYE 2013, it generated as a group a return on equity of 13.5%.
Its top performing fund, PMB Shariah Aggressive Fund, generated a 21.7% return for its latest fiscal year from which it distributed about 12% to its investors.
Did you find this article insightful?