SILKHLD (5078) - West Coast Silk Road

Tuesday, 17 January 2017

SILKHLD (5078) - West Coast Silk Road

Well, if you guys had been following me on my previous blog post on Silk Highway, today I am going to share with you regarding my analysis on the biggest hot question in regards to the disposal of Silk Highway.

As every disposal cannot be completed without a buyer, so who is the highest potential buyer for Silk Highway in 2017 ?

**Jeng Jeng Jeng**

Since the completion of Silk Highway, it had never been profitable. One of the reason is due to the slower than expected vehicle volume growth.

As you can see, the highway caters around places that are considered as "suburbs", and the toll are erected further away from the city center. So basically, quite a number of motorist are using portion of this highway without needing to pay toll. For example, many are using portion of the highway to commute from Sungai Long / Mahkota Cheras to KL for free, and they pay toll at Besraya Toll Plaza (which is owned by IJM).

Basically, this highway can be turnaround by building new links with existing major highway, or newly constructed highway and erecting tolls at better location. But, Silk Holding is definitely not in the position to do this anymore, as their heavily indebted balance sheet couple with negative cash flow does not allow them to do so. If you would ask any experience business man, the best option available for Silk is to dispose off the highway in order to cut the negative cash flow, and reap a one off profit from the investment.

To sum it, Silk Holding Berhad need to find a buyer that owned some highways, and is financially capable of upgrading the highway as well, which left them with not much option. If you ask me, I think the only viable option is only IJM.

But why IJM and Silk mutually aborted the deal in November 2014 ? I think one of the major reason could be due to
1. dilution in earning from fund raising activities in asset acquisition
2. create a drag in net profit as asset is still in a negative cash flow position

Hence putting this unproven egg into the basket could potentially ruin the whole basket of goods, and it's share price will definitely get punished severely for that, which I believe is not what most shareholder want this to happen.

So another better option will be for Silk Highway to be acquired using some new vehicle that IJM had substantial stake in. If you are familiar with the market, it would not take a long time for you to figure out that new vehicle which IJM have substantial stake is - WCE Holdings Berhad (WCEHB - 3565). According to the latest filing, IJM had a total of 26.45% stake in WCEHB.

So, what are the signs in WCEHB ?

Let's look at the price chart of WCEHB.

According to the chart, WCEHB had been pushing towards the RM 1.00 region. Meanwhile, there are also heavy accumulation at the region near to RM 1.00, and the share price had been consolidating at the range of RM 0.90.

If WCEHB wants to acquire Silk Highway, one of the best way to start is probably through a 10% private placement, which can easily raise RM 100 million based on their existing share base of 1 billion shares at a minimum price of RM 1.00 (Par value RM 1.00). If the private placement is RM 1.00, this will make sense to you why the share price of WCEHB is going up? Make sense right?

Meanwhile, I believe there will be potential investor who wants to have exposure in the West Coast Expressway, let's say some China investor ? So private placement is the best option for them to invest in a fixed pricing, and this could be a one arrow piercing two birds scenario for WCEHB.

As for Wzsatu, I believe his role is just a teaser to test the market reaction, because Wzsatu also got some substantial portion of projects in the West Coast Expressway. So, it wouldn't hurt much to do some drama lor I guess ? Haha


Anyhow, I am just sharing my analysis. The rest of it, I will let you to figure out, but 1 thing for sure, Silk Highway will definitely need to be sold off.

SILKHLD (5078) - West Coast Silk Road 
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