Jalil must raise investors’ confidence in BCorp

His ability to develop relationships could prove beneficial for a turnaround in the perception surrounding BCorp

by PRIYA VASU / pic by TMR

BERJAYA Corp Bhd (BCorp) new CEO Abdul Jalil Abdul Rasheed’s (picture) biggest challenge will be to build investors’ confidence in the corporate behemoth while remaining on good terms with its founder and controlling shareholder.

As the first “outsider” to take the helm of Tan Sri Vincent Tan’s flagship company that has so far been managed by the family, Abdul Jalil has inherited a company that has slipped into the shadows plagued by lack of investor goodwill, spotty earnings history, related party transactions and cross-ownership.

“All of this has raised major questions about the corporate governance of BCorp despite having established a sprawling business for decades.

“It’s better to have fresh eyes to scrutinise the management than just having the family. But it will be an arduous task for Abdul Jalil,” said an analyst with a local brokerage to The Malaysian Reserve.

He added that while the market has welcomed the appointment favourably, Abdul Jalil needs to find other ways to keep investors excited in the coming months, especially in the absence of a meaningful dividend announcement for its shareholders, transparency and questionable corporate governance.

“There is a growing contention among shareholders, especially minority shareholders, about BCorp’s dividend payout and some of the corporate exercises that were done in the past and did not take into account their wellbeing,” said the analyst.

In June last year, BCorp sought shareholders’ ratification for the disposal of its beneficial interest in Four Seasons Hotel & Hotel Residence in Kyoto, Japan, to Godo Kiasha Tigre for ¥50.79 billion (RM2.06 billion) that is expected to net it an estimated gain on disposal of RM649.41 million. In February 2020, it announced its proposed disposal.

In the past, Tan pointed out some of the restructurings could involve privatisation of non-performing entities such as BLand

In a written reply to queries raised by shareholders, BCorp stated that the proceeds gained from the disposal will most likely be tended to its financial obligations.

“Large shareholders and directors have influences to expropriate wealth by going into such corporate exercises. But for minority shareholders, it’s a big predicament that could affect the value of their investment,” said the analyst.

He added that the scepticism minority shareholders have of BCorp is justified based on their past treatment, especially when it comes to transparency.

In January last year, Minority Shareholders Watch Group (MSWG) raised questions about Tan’s involvement in 7-Eleven Malaysia Holdings Bhd’s subscription of a 46.45% stake for RM7.51 million in Myinteractivelab Sdn Bhd (MSB) — the company operating the motorbike e-hailing service provider, Dego Ride.

“The decision raised eyebrows, not only because the transportation industry is an alien business for the convenience store operator, but more so considering MSB is both loss-making and has no proven track record in the e-hailing industry, unlike Go-Jek or Grab Car,” said MSWG CEO Devanesan Evanson in a weekly newsletter dated Jan 10, 2020.

MSB made a net loss of RM41,939 on the back of RM36,440 revenue in the financial year ended Dec 31, 2018.

“This fact was not disclosed in the announcement and shareholders had to learn of it from the press. Surely, shareholders expect large-cap public listed companies like 7-Eleven to be more transparent and shed more light on the transaction,” he added.

Transactions done without a sufficient due diligence study on the risk and reward of such an investment further complicates shareholders’ trust in the company and that will be Abdul Jalil’s task to address by holding meaningful engagement with shareholders in coming months.

Tan is the biggest shareholder in 7-Eleven Malaysia with a 27.65% stake, according to Bloomberg.

Abdul Jalil’s entry into BCorp is also timely, especially since the group has been ravaged by the ongoing Covid-19 pandemic.

From its hotels to number forecasting operations, no business has been spared by the Covid-19 pandemic, leading the group to posting negative earnings.

In the second quarter ended Dec 31, 2020, BCorp’s net loss narrowed to RM49.7 million from a net loss of RM134.4 million recorded in the same period a year ago.

The group noted that the implementation of the Enhanced Movement Control Order (EMCO) and Conditional MCO in certain areas and states hampered its business operations.

The hotels and resorts business segment remains affected by international border closures and travel restrictions, the group noted in its filing to Bursa Malaysia.

As the outlook for the group throughout 2021 still looks challenging, BCorp’s shares remain undervalued despite holding major shares in subsidiary companies.

Since his appointment, BCorp shares have rallied from about 18 sen on March 16 to 33.5 sen yesterday, valuing the group at RM1.68 billion. It has a 72% stake in Berjaya Land Bhd (BLand) which is worth about RM750 million, about half of BCorp’s market cap.

BCorp has a 48% stake in Berjaya Sports Toto Bhd, which has a market cap of RM2.89 billion, worth some RM1.39 billion alone.

“Clearly, BCorp’s shares are undervalued on paper. However, future investment strategies and restructuring that will take place will be key for its future shares appreciation,” said the analyst.

He added that investors are buying into BCorp shares because they believe Abdul Jalil could deliver substantial results. They are also buying into a seemingly undervalued stock that could offer better value in future.

The investor community seems hopeful about Abdul Jalil’s keenness in understanding how businesses are run, and his ability to develop relationships could prove beneficial for a turnaround in the perception surrounding BCorp.

“The litmus test for Abdul Jalil’s leadership is in the ability of the company to unlock values by bringing in more digital initiatives that the group has missed out and executing some of the plans that was announced by Tan,” added the analyst.

In the past, Tan also pointed out that some of the restructuring of the group could involve privatisation of non-performing entities of the group such as BLand.

The analysts added that while making a profit is crucial for any companies, aligning business activities to a society’s wellbeing adds value to companies and has come under scrutiny from certain institutional investors.

Read our previous report here

Incoming CEO Jalil Rasheed lists down priorities at Berjaya