Khazanah's Selling, Take Note

When a company's biggest shareholder starts cashing in, savvy investors often take it as a sign to also bail. News Tuesday then that Malaysian sovereign fund Khazanah Nasional is considering paring its stakes in three companies should have hedge funds on high alert.

The state-owned investor has asked banks to pitch for a role arranging the sale of about 2 percent each in Tenaga Nasional, IHH Healthcare and Axiata Group, in transactions that could raise almost $900 million, people familiar said. Malaysia's government does want to boost liquidity in local markets, but even so, a deal would seem well timed.

Tenaga, Malaysia's biggest publicly traded power producer, closed at 14.12 ringgit on Monday, not far off a record high reached in January last year. Perhaps more importantly, its stock is trading at about 16 times its previous 12 months' earnings, near the highest in about four years.

To be sure, analysts are expecting Tenaga's earnings to grow to an adjusted 1.26 ringgit per share this year, which has pushed the forward price-to-earnings ratio to 11.1 times from a high of 16.6 times in March 2015. Yet, if any investor were to cash in, now looks like a good moment.

IHH Healthcare, Asia's largest hospital operator, exhibits similar metrics. Its stock closed at 6.51 ringgit on Monday, having touched an all-time high of 6.75 ringgit in March. It's trading at 54 times expected earnings, close to April's record 56 times. Nashville, Tennessee-based hospital operator HCA Holdings, by comparison, trades at a forward price-to-earnings ratio of 12.6 times.

The exception is Axiata, Malaysia's biggest wireless operator. Its shares are languishing near June 2012 lows, and just five of the 26 analysts surveyed by Bloomberg rate them a buy or outperform. Furthermore, as a mobile company in a competitive Asian market, Axiata naturally has quite a bit of money to spend. Its annual report states:

``The group recognizes the risk of lagging in the development and deployment of new technologies and its related ecosystems. Such lags may result in additional capital expenditure in technologies in order to expedite deployment of new infrastructure to remain competitive in the respective markets.''

Be that as it may, Khazanah is viewed as an investor to watch. And while offloading some of its holdings will help fulfill the state's directive to boost liquidity, you can bet it plans on making a tidy profit in the process. Hedge funds, take note.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Christopher Langner in Singapore at clangner@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.