YTL Cement ... Oct10

Seen months after exiting its cement investments in Singapore, YTL Cement Bhd has continued on its expansion track, taking full control of Perak Hanjoong Simen Sdn Bhd Bhd (PHS) in late Sept 2010.

To recap, YTL Cement on Sept 2010 acquired the remaining 35.16% equity interest it did not own in PHS from Gopeng for Rm200 million or Rm1.70 a share in an all cash deal. By buying out Gopeng’s interst in PHS, YTL Cement will have full ownership and control of the latter and be able to integrate the operations of the company with its other cement operations.

The acquisition of the remaining 3% in PHS from Gopeng Bhd for rm200 million will more than compensate for its loss in earnings from the disposal of its 21.48% stake in Singapore based Jurong Cement Ltd. YTL Cement disposed of its entire stakes for S$23.8 million (rm55.87 million).

While the RM200 million price tag for the PHS acquisition is much higher than what YTL Cement got from the sale of its stake in Jurong Cement, a closer scrutiny of the numbers tells a different story.

From a valuation point of view, the acquisition of PHS came in a at al lower price to book multiple than the disposal of the Jurong Cement equity interest. At S$2.50 a share, the disposal of the Jurong Cement stakes translates into an estimated PB multiple of 1.4 times based on Jurong Cement’s net assets per share of S$1.76 as at Dec 31, 2009. YTL Cement had acquired the stake at a PB multiple of 0.48 times in Sept 2005.

In PHS, YTL Cement’s acquisition of the remaining 35.16% equity interest at Rm1.70 a share translates into a PB ratio of 0.93 times based on PHS estimated net assets of rm610 million or RM1.82 a share in FY2009.

The deal is subject to Gopeng’s getting a shareholders’ nod at an EGM that has yet to be held.