Cash Talks Loudest in Mean Times

Izwah Idris wrote in the online STAR today (19 June) about how money talks in quiet times. I would like to amplify that.

Cash talks loudest in mean times!

These cash-rich companies enjoy a significant advantage over their less fortunate rivals in these horrendous times.Having lots of cash in the treasure chest provides these firms leverage to buy into strategic assets when an opportunity arises as well as to hunker down when business is slow.

In a recession, cash is king, or so the cliche goes. and money is useless insavings with current almost dead-beat interest rates.

To boost returns to shareholders, cash-laden companies like Genting Bhd and Carlsberg Brewery Malaysia Bhd have set out plans to make their pile of cash work harder.

Genting recently bought bonds and a small equity stake in troubled US gaming giant MGM Mirage. Analysts say this is likely a prelude to bigger things, with a potential partnership between the two groups being the most anticipated outcome.

Genting has an estimated RM3bil cash hoard, the bulk of which comes from subsidiary Resorts World Bhd’s RM4.8bil stash.

There is lingering talk on the possibility of Genting selling off its power business, which could expand “the group’s cash hoard in preparation for potential merger and acquisition (M&A) deals,” a CIMB Research said in an update on the company dated June 15.

Meanwhile, the market is waiting for Carlsberg Malaysia to announce a regional acquisition.

Earlier this year, the local unit of the Danish brewer held back at least RM52mil cash from shareholders after it cut the dividend payout for 2008, citing the need to conserve funds for expansion.

With a war chest of RM220mil, Carlsberg Malaysia is probably intending to make a significant purchase.

Another company said to be on the prowl for acquisitions and new projects is YTL Power Bhd. After completing the Power Seraya acquisition last year, YTL Power’s gross cash position remained at a strong RM7bil.

Companies operating in the gaming, consumer and utility sectors normally have steady positive cash flow from operations given the nature of their businesses.

This helps big-sized firms in these industries to build up their cash holdings rapidly.

RHB Research Institute estimated that Petronas Gas Bhd added about RM150mil in net cash every quarter and had in its coffers some RM1.5bil in cold cash as at end-March. This is after taking into account total liabilities that amounted to nearly RM500mil.

An interesting finding is that most listed motor vehicle players in the country have strong balance sheets.

As at end-March, Proton Holdings Bhd’s cash and equivalents stood at RM900mil, while total debt was RM358mil. UMW Holdings Bhd, which has a significant oil and gas business, has RM1.5bil in cash and RM1.27bil worth of debts.

Parts maker APM Automotive Holdings Bhd’s net cash position is RM180mil, while Oriental Holdings Bhd has about RM1.4bil net.

About half of both APM and Oriental Holdings’ current market values are supported by cash.

Among the smaller capitalised companies, quite a few companies have very little borrowings and a healthy cash pile.

Oil and gas equipment maker APB Resources Bhd is one of those companies with a clean balance sheet. It had no debts and RM71mil in cash, mostly placed in banks, as at end of last year.

At yesterday’s close, the stock was valued at RM112mil.

So, for those intending to enter the market;watch these stocks:

Genting Berhad
Genting Malaysia Berhad(formerly known as Resorts World Berhad)
YTL Power
Carlsberg
Bursa
Proton
Petronas Gas
UMW holdings
Oriental holdings
APM Automotive Holdings.

Remember entry point is important!

Happy shopping on the Bursar.