Short Position - KNM, M&A Securities

THE ongoing saga at asset-rich KNM Group Bhd continues.

Stock exchange filings show that its chief executive officer Terence Tan Koon Ping had disposed of one million shares into the open market last Friday.

This week, he increased two million shares via employee share option scheme (Esos) allocation.

Tan, the former chief financial officer of KNM, started helming the group when he assumed the role of CEO in July 2020 following the stepping down of founder and former group CEO Lee Swee Eng.

According to filings, Tan owns a total of 8.5 million, giving him a direct interest of 0.255%.

Group chief financial officer Wong Toh Sing, meanwhile, sold 100,000 shares and increased 1.6 million shares via Esos allocation.

The Esos scheme was granted in 2019 by the company’s previous board of directors.

Meanwhile, MAA Group Bhd, which surfaced as a substantial shareholder in the group last month with a 7.01% stake, also increased its stake this week. Latest filings show that the cash-rich MAA now holds a direct 7.982% stake with another 2.4% held indirectly.

On the business front, a tranche of RM370mil bond is due in November in Thailand. One wonders if KNM has made any progress towards this.

The previous KNM board under Lee had talked about unlocking value at German-based Borsig GmbH – the group’s prized asset, which is a major contributor to the bottom line. Part of the money to be raised was to go to repay debts.

KNM will remain a company watched by all, especially on what moves MAA decides to nudge it toward, considering that it is now one of the largest shareholders.

M&A Securities reversing into SYF

SOME shareholders of SYF Resources Bhd weren’t too impressed with the proposed exercise in which boutique investment bank M&A Securities Bhd gets reversed into their company. SYF shares dropped by almost 20% since the announcement. However, it should be noted that SYF’s shares were trading at a mere 17 sen a year ago.

The exercise is a detailed one involving new share issuance – a total of 1.58 billion new SYF shares at an issue price of 14 sen per share – plus a planned dividend to SYF shareholders of a total of 18 sen per share.

There is also a rights issue and a restructured issuance of new shares to certain eligible directors and employees of the enlarged SYF and others.

M&A Securities is valuing itself at 1.2 times its book value. That may be higher than most banks listed on Bursa Malaysia but one could argue that M&A Securities is quite different from banks.

It is a very niche player in financial services and does not have the kind of huge asset base and related compliance pressures on it compared with banks. These, in turn, tends to hinder bank’s growth and margins, comparatively speaking.

M&A Securities posted a net profit of RM18.81mil for the financial year ended June 30, 2021, a doubling from RM9.22mil a year earlier. Considering the many deals that M&A Securities can be seen to be involved in, its profits are likely to keep growing.

Aside from that, with M&A Securities listed through this exercise, it no longer needs to rely on its parent Insas Bhd as its sole funding source.

While Insas will end up with a massive 75.9% stake in the new entity, which will be called M&A Capital Bhd, there is now the possibility of new strategic shareholders coming in to not only bring more capital but also new deal flows and perhaps into new growth markets overseas.

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