E-Malt.com News article: 3208

China: China-based retail group Lion Diversified Holdings Bhd is expected to exercise its put and call option to sell the balance of its 50% stake in breweries in China, sources said. The group sold an initial 50% of its brewery division in January and reaped an exceptional gain of RM380mil in its financial year ended June 30, 2004 (FY04), The Star Online posted on September 4.

Diversified is entitled to exercise the option in January next year and it will do so, according to a source. “The sale will make such a big profit – another RM380mil. It will take many years for the breweries to make that kind of money,” he added. Based on Diversified's net cash position on June 30, the group will have net cash of almost RM400mil after it sells the balance of the brewery.

This works out to about 85 sen in cash per share. The stock closed at RM1.17 yesterday. On paper, investors would be paying the difference of 32 sen a share for the rest of Diversified's assets, and the group has a bunch of rich assets. These assets comprise a 24.7% stake in Lion Corp Bhd, which in turn, owns Megasteel Sdn Bhd; the Parkson retail group which is particularly profitable in China; Likom, which makes computer casings and monitors; and a property division that is developing Bandar Mahkota Cheras.

Besides these, there is another item on the minds of fund managers. This is whether there will be another round of capital repayment or special dividend. Diversified has a good record here. When it sold the first 50% of its brewery division in China, it used part of the cash proceeds for a capital repayment of 40 sen a share. It could do that again.

There is, of course, some concern among fund managers that the management might channel some of the cash to other listed units of the Lion group. “That will not be taken well by investors,” said a fund manager. Taking a realistic view, another fund manager said even that might be palatable if there was a special dividend for shareholders. Altogether, the Lion group has restructured Diversified well. It is cash-rich and it has a major stake in Lion Corp, a jewel among its investment assets.


08 September, 2004