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Tanjong plc will be privatised by its major shareholder, Usaha Tegas, via a special purpose vehicle (SPV) that has made a conditional offer to acquire all the outstanding shares of Tanjong at a cash offer of RM21.80.
We had deemed the pricing attractive and had advised investors to accept the offer. Tanjong has appointed its independent advisor and the proposal will soon progress to an EGM of shareholders.
Given that the privatisation is expected to be completed towards end-September, this will require an early review of the KLCI components ahead of the index’s scheduled semi-annual review in December as Tanjong is currently the 20th largest component in the index. Apart from Tanjong, another index component namely Berjaya Sports Toto, is currently the 37th largest company in Malaysia by full market value.
Based on the FTSE Bursa Malaysia (FBM) indices’ ground rules, a security will be deleted at the periodic review if it falls to 36th place or below. As such, there is a possibility of both gaming companies, Tanjong and Berjaya Sports Toto Bhd, being removed from the index upon the next review.
In terms of potential replacements for these two companies, based on FBM’s latest review announcement, the reserve list for the KLCI includes IJM Bhd, Gamuda Bhd, Berjaya Corporation Bhd, Lafarge Malayan Cement Bhd and Parkson Holdings Bhd.
Of these five, Gamuda and IJM are the largest, being ranked 31st and 32nd in terms of full market value respectively. As such, if Tanjong and possibly Sports Toto were dropped from the KLCI, it is likely that Gamuda and possibly IJM would be added into the index.
As both stocks are assigned investibility weightage of 100% based on their current market cap, they will be ranked the KLCI’s 19th and 20th largest components. We currently have a buy call on IJM (TP: RM5.32) and a neutral on Gamuda (TP: RM3).
The inclusion of these two stocks in the index would see Construction gaining a 3.2% representation in the index compared with none before. This would of course come at the expense of the Gaming sector, whose weightage would drop from 10.2% to 7.6%.
Nonetheless, we believe it would generally be viewed positively by the investment community as there would be greater diversity of sectors in the index. When the previous 100-member KLCI was replaced with the 30-member FBM KLCI in July 2009, there were numerous complaints that the FBM KLCI was not fully representative of the market given that there were no pure play construction and property companies.
We see this development as positive on the overall index given the possibility for more news flow in the construction sector, particularly in early 2011. We maintain our year-end KLCI target of 1,465.
We had deemed the pricing attractive and had advised investors to accept the offer. Tanjong has appointed its independent advisor and the proposal will soon progress to an EGM of shareholders.
Given that the privatisation is expected to be completed towards end-September, this will require an early review of the KLCI components ahead of the index’s scheduled semi-annual review in December as Tanjong is currently the 20th largest component in the index. Apart from Tanjong, another index component namely Berjaya Sports Toto, is currently the 37th largest company in Malaysia by full market value.
Based on the FTSE Bursa Malaysia (FBM) indices’ ground rules, a security will be deleted at the periodic review if it falls to 36th place or below. As such, there is a possibility of both gaming companies, Tanjong and Berjaya Sports Toto Bhd, being removed from the index upon the next review.
In terms of potential replacements for these two companies, based on FBM’s latest review announcement, the reserve list for the KLCI includes IJM Bhd, Gamuda Bhd, Berjaya Corporation Bhd, Lafarge Malayan Cement Bhd and Parkson Holdings Bhd.
Of these five, Gamuda and IJM are the largest, being ranked 31st and 32nd in terms of full market value respectively. As such, if Tanjong and possibly Sports Toto were dropped from the KLCI, it is likely that Gamuda and possibly IJM would be added into the index.
As both stocks are assigned investibility weightage of 100% based on their current market cap, they will be ranked the KLCI’s 19th and 20th largest components. We currently have a buy call on IJM (TP: RM5.32) and a neutral on Gamuda (TP: RM3).
The inclusion of these two stocks in the index would see Construction gaining a 3.2% representation in the index compared with none before. This would of course come at the expense of the Gaming sector, whose weightage would drop from 10.2% to 7.6%.
Nonetheless, we believe it would generally be viewed positively by the investment community as there would be greater diversity of sectors in the index. When the previous 100-member KLCI was replaced with the 30-member FBM KLCI in July 2009, there were numerous complaints that the FBM KLCI was not fully representative of the market given that there were no pure play construction and property companies.
We see this development as positive on the overall index given the possibility for more news flow in the construction sector, particularly in early 2011. We maintain our year-end KLCI target of 1,465.
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