Thursday, September 24, 2009

Why I Like NSTP (Seriously... A Lot ...)



Granted, NSTP is not a great company. This is more a value proposition in taking it private. Of course such a proposition will only remain as such unless there are ready catalysts that will make it "happen sooner" than indefinitely. I have good reasons to see corporate restructuring / privatisation for NSTP in the very near future. The gobbling up of shares over the last 4 weeks also gave me a lot of confidence in the stock as a strong value play.

The boring industry data factors such as 1) the consumption of lower priced newsprint, 2) a pick-up in ad spend, 3) cover price hike taking effect, and 4) full impact from ad rate increase .... are all mundane and blah-blah. If NSTP is privatised, shareholders are unlikely to accept an offer at current prices as the group’s assets are worth RM4.51 per share... in fact a privatisation would have to be at least RM4.20 for it to be considered as worthwhile. And let me tell you that it is worth paying RM4.20 for NSTP.

The best reason for privatising is this, the value of its land holdings and buildings alone is worth RM310m. Taking that out the underlying print business is being valued at less than 2x PER. Why do you want to keep a business listed at just 2x PER valuation? If you can somehow revitalise the business or investor confidence or need huge capital raising, then by all means wait for the markets to revalue the stock - but nothing of that sort will be happening. While the print business is second rate, it is still a viable business and certainly not at just 2x PER.

The stock had a run in early July with the revival of market talks on the merger with Utusan, which had previously been in the news back in 2006. In recent weeks there have rife rumours on the potential privatisation of NSTP by its major shareholder, Media Prima via the acquisition of the remainder 56.7% stake that it does not currently own in NSTP. On Aug 11 a financial daily reported that NSTP’s board is considering the offer from Media Prima, which involves a straight 1-for-1 share swap. Based on the last closing price of Media Prima of RM1.56, the offer stands the risk of being rejected as it would significantly undervalue NSTP given its NTA of RM4.51/share as at 2Q09. EPF and KWAP collectively hold 13% in NSTP, and are likely to have an influence over the outcome of any proposal, and would probably demand some form of cash component.

The timing is very ripe with the departure of the previous CEO from Media Prima. Datuk Amrin Awaluddin who was appointed as the group managing director of Media Prima Bhd (MPB) effective Sept 1, has joined the board of NSTP as a non-independent non-executive director as well. Amrin was previously the chief operating officer of MPB and has also assumed the position of chief financial officer of Sistem Televisyen Malaysia Bhd. The main strategic thinking behind this is that it is no longer viable or even attractive to let NSTP be listed alone. Media as an industry is a lot more than just being a newspaper or a tv operator, you need to have a collaborative media unit in all facets of the industry. You need to cross sell and leverage on the multimedia concept.

Should Media Prima acquire the remainder stake at NSTP at current market values via a share swap (which would likely be the case given the former’s high debt position), the deal would enable NSTP shareholders to participate in the longer term growth potential offered by the more liquid and enlarged Media Prima entity. The deal would:
- Unlock value through the sale of NSTP’s valuable non-core assets.
- Media Prima would be able to tap into NSTP’s strong balance sheet and cashflows for investments in additional media platforms. The Utusan deal would probably not go through as the political and cultural hurdles may be too hard to overcome, especially when you have Media Prima with the highly attractive free to air stations. You do not want incompatible content.

Just 217m shares, Media Prima has 43.3% and EPF has 10.5%, and I doubt they will be selling , in fact they should be accumulating ahead of a positive restructuring.... and Maybank Investment Research has ceased coverage on NST since May 2009, and thats always a good sign. No, that's not a slight on Maybank Investment Research but rather the act in itself confirms that institutional investors could not care less on NSTP as a listed vehicle - confirmation that something has to be done and quick.

52 week high-low 1.94 - 0.975 ... Although I am not an out and out technical analysis guy, I do subscribe to volume and breakouts. Plus I love it when the breakouts are accompanied and substantiated with a strong fundamental or corporate catalyst play. That is a strong indication that the timing is about just right. It broke through its 52 week high strongly today with volume, I like that very much. As a pure buy I would be prepared to buy up to RM2.45 just to hold till restructuring, which should see the shares closer to RM4.00 by then.


3 comments:

see said...

Dali, you did it again. NSTP up 0.18

pica said...

The financials look interesting but there's just one question.
Media Prima and NSTP being Umno counters, do you think they will be true to form and try to avoid diluting Gabungan Kesturi?
As it is, Media Prima is going to have to sweeten the one-for-one share swap lots and lots and lots

Alvin said...

Hi Salvatore_Dali,
what about the case that NSTP will not able go to privatized by whatever reason .. is it still optimized ?