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KrisAssets Holdings Berhad – the name may not ring a bell.

But mention Mid Valley Megamall and who hasn’t heard of it? Such is the disparity in branding.

KrisAssets owns Mid Valley Megamall. And yes, you can buy a piece of it on Bursa Malaysia. Which was what I did earlier today. Previously an old manufacturing company, KrisAssets was brought to life a few years back by IGB Corporation Berhad. Basically it owns Mid Valley Megamall – the shopping centre, car parks and all. But IGB still holds on to The Gardens, Cititel and some other parts of Mid Valley City.

Earnings Details

KrisAssets (KASSETS) is not a potential 2 or 3 bagger share but it does have defensive characteristics which I value quite a bit in the current market.

Hardly anyone in the investment community would say that KrisAssets is expensive. At RM2.59, it is around 17% below its NTA of RM3.12 and trades at under 9x PE Ratio. It has been a total laggard in the recent market rally.

The key issue is whether management wants to unlock the value in this company.

First let’s look at the NEGATIVES:

1. Thinly traded – Hardly any shares change hands each day and the Buy-Sell spread is usually wider than other companies its size. IGB holds 74.9% of KrisAssets, add to this all the other insitutions and the result: retail investors have to make do with less than 10%. In fact, there were some issues that KrisAssets was not meeting the Bumiputra Equity conditions imposed by the SC. Although this issue was resolved only a few days ago.

2. Low Dividends – KrisAssets has been paying out 15 sen per share for the past few years. Earnings have been growing but dividends have not followed suit. This notwithstanding, KASSETS dividend yield is still pretty decent compared to most other mid-large cap stocks.

3. Inefficient Structure – if KASSETS was a REIT, it would save a lot in taxes and would be paying out 28-29 sen in distribution. Most likely it will trade at a premium to all the other REITs because of its asset quality, which means its unit price should be around RM3.50 – RM4.00. Check out an article by TheEdge 2 years back entitled Looking at KrisAssets as a REIT (around 1MB to download).

4. Low Transparency – Read through the company’s Annual Report and website and you’ll soon figure out that management is holding the cards close to its chest. I’ve got no idea how big is Mid Valley Megamall, how many tenants they have, what is the rental income breakdown, what is their strategy and so on.

But I’m only a small investor…. so I don’t need to know.

5. Acquisitions – Market talk has been that there will be acquisitions to come – there is speculation that perhaps The Gardens might go into KrisAssets. Given that the assets will most likely come from IGB, I hope we minority shareholders are not taken for a ride when it comes to pricing.

OK now let’s look at the POSITVES:

1. Top Asset – Mid Valley Megamall (along with 1-Utama) is probably the best shopping centre in Malaysia. It dominates a huge catchment area to the credit of IGB team which had an early foresight, vision and guts to execute their plan. It was the project that almost sunk IGB 11 years ago but has since paid off handsomely and become the Jewel in their Crown.

(Mid Valley Megamall is an integral part of the overall Mid Valley City, Kuala Lumpur’s “City within the City”)

I don’t think that any significant competition would appear any time soon. Even Westfield would be proud to own this asset. Every time I get stuck in the car park on Saturday, I’ll just try to remember that I own some shares in this thing… if you see that person smiling in the car parking jam, you know who that is

2. Pure Play – KrisAssets is a single asset company, but because it is a top class asset, it offers pure un-adulterated exposure to Kuala Lumpur’s retail property sector. There is no office block, industrial warehouse or some fancy hotel to dilute this. If I wanted to invest in other asset classes, I know who to go to. Let’s not have all the other stuff in Kris Assets… keep it pure. But somehow I don’t think it will stay this way for long.

3. Conservative – So far there are no wild acquisitions by the company. Earnings is consistently used to pay down its borrowings. This is prudent and I hope that it does not gear up excessively to buy assets from IGB Corp at inflated prices, or even worse, buy unwanted assets from IGB.

For the past 2 years, KrisAssets has beeen a sideways performer at best (see below chart).

I believe that the downside for this counter is quite limited even if the stockmarket crashes, as we saw last year. On the other hand, it’s not hard to see a 10%+ price appreciation within a 2-year timeframe. Mid Valley Megamall is a bread-and-butter shopping center. It is resilient – one of those rare properties that can continue to command growing rental income in this climate.

Whether KrisAssets can grow its asset base, acquire more top quality shopping centres and add value to shareholders remains to be seen. It certainly has the firepower. But what is needed is that good ol’ IGB vision, guts and resolve that have made Mid Valley Megamall a household name to so many in KL.

If management decides to unlock value through a REIT structure or higher dividend payout, then I should be in for some windfall. But this will be a bonus.

A model of the Mid Valley City Masterplan. Some RM250 million alone has been invested in roads and traffic flow around Mid Valley City.