Monday, April 27, 2015

An above average-company at below-average prices

In early 2014, PRK was the subject of a capital restructuring and repayment exercise. The investment arm of the Perak State Government (PSG) and some other parties had proposed to privatise the company at RM3.90 per share. Sime Darby considered the price too low, and as a result the proposal did not materialise.  Indeed the price was too low considering that the NTA value of PRK was at that time more than RM5 plus per share. 

PRK had a 15.74% stake in Integrax. Recently it sold this block of shares to TNB at RM3.25 per share. This will add in some RM153 million to the coffers of PRK with a gain of about RM50 million or 50 sen a share. 

Before this transaction, PRK was already cash-rich with RM100 million in cash although it had about an even amount in debt. 

PRK is building a township in Perak and in a joint venture with the Sanderson Group to develop a theme park in the vicinity of its township. The Sanderson Group is a specialist in operating theme parks. Hence, the success of this theme park is likely to be odds in favour.

The media has reported that the theme park would be ready for operation by early 2016. There is bound to be some furore when the theme park is launched. This will have a positive impact on the price of the stock. At the last traded price of RM2.96, this is a buy. 

The PSG has failed to privatise the company in its first attempt. I don’t think it will stop at one. I strongly believe that it will make another attempt in the not too distant future, probably within the next 12 to 18 months. It could even be within the next 6 months. The offer if it does come could be as high as RM4.50 per share. This is not a wild guess but a logical conjecture. 

I am long on the stock. I intend to accumulate more before it shoots above the RM3.30 level. This is an above-average opportunity to make a good profit. 

Whatever action you take as a result of this article, you do so at your full responsibility. In other words, you buy, sell or hold the stock at your own risk absolutely.