Published December 11, 2008

Right time to buy Thakral? Look for safer bargains

By EMILYN YAP

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SHAREHOLDERS who invested in Thakral Corporation during better times are losing sleep over the company's current state of affairs. Closing at 3.5 cents a share yesterday, many are fretting: how much lower will the counter fall?

The same question is keeping another group of people awake, but it holds promise rather than fear. For bargain-hunters, 100 Thakral shares now cost about the same as a plate of chicken rice.

They are asking: how much lower can the share price go anyway, and is this the right time to buy?

Well first, near-term catalysts needed to propel Thakral's share price appear nowhere in sight. The company has not even settled on a business focus - while it is planning to switch from consumer electronics distribution into real estate, a major shareholder, Hong Leong Asia, is still against the move.

Should Thakral shareholders eventually support the repositioning, there is also no clarity on how and when real estate investments would produce returns and stock gains.

According to a memorandum of understanding between Thakral and Australian-listed property firm Payce Consolidated, Thakral could commit up to A$117.5 million (S$116 million) in several transactions. The bulk of it, or A$77 million, will go into property-linked notes issued by Payce's special purpose vehicle.

While Thakral has said that the notes will pay out a running yield and deferred interest, the exact mechanisms, returns and risks of these notes have not been fleshed out.

Thakral also plans to invest directly in the Australian property market, but it is bottoming and a recovery may be some way off. Just last month, Australia's construction industry shrank for the ninth month as demand for new homes fell, said Bloomberg. Even if Thakral stays in consumer electronics distribution, its earnings potential remains in doubt.

The company has struggled to stay in the black in the last few quarters, and while Hong Leong Asia seems confident about its ability to strengthen the business, tough industry competition will pose challenges.

Looking at its books, Thakral is undervalued relative to its net asset value of 8.64 cents per share as at Sept 30. It also has $106.4 million in cash and cash equivalents. But how long can it maintain this stash? Even without the potential outflows into property investments, the firm's cash holding has shrunk by more than $17 million from two years ago.

With all these uncertainties on the horizon, investing in a company that even Hong Leong Asia has difficulty managing will take patience - and some nerves. With the mass selldown happening in today's markets, there will be safer bargains out there for those who wish to have a good night's sleep.