Monday, 25 November 2013

Low profile Keck Seng gains momentum

Tuesday, 26 November 2013 10:03

KECK SENG (M) BHD is a plantation company that has been off investors’ radar screen due to its low profile.

Those who have invested in the company would have been rewarded by its recent share price surge last year.

The share price reached its peak in May this year on rumours of a corporate exercise and special dividend which bumped up the share price to RM7.76.

The counter closed at RM7.53 yesterday, translating into a gain of 97% from RM3.82 a year ago, with an average trading volume of over 220,000 shares.

Investors who invested in the company before the 2008/09 crisis would have seen their investments multiplying by 290%.

Keck Seng’s market capitalisation has also grown exponentially within a five-year period.

Based on the closing price of RM7.53 yesterday, its market capitalisation reached  RM2.71 billion from just RM694.4 million in 2008.

Market watchers attributed the rally in the share price earlier this year to the renewed interest in the group’s assets spinning off into real estate investment trusts (REITs).

Keck Seng has a diverse portfolio of businesses in property development, share investment, oil palm estates, hotel and resorts.

The plantation firm is a unit of the Keck Seng group. Its other vehicles include Hong Kong-listed Keck Seng Investments Ltd and Keck Seng (Singapore) Pte Ltd.

It is not clear how much of the group’s properties which carry a total book value of RM530 million will go to REITs.

The company’s 2012 annual report reveals that the company has agriculture and housing development land in Johor worth a net book value (NBV) of RM227.53 million.
Keck Seng has a golf course, several residential and commercial developments as well as oil palm estates — all of which have not been revalued since 1980.

Keck Seng also owns several properties around the globe. It owns hotel buildings in the US and Canada worth a NBV of RM137.36 million.

In Singapore, it owns an office building with a NBV of RM4.14 million. Its properties in Malaysia, consisting of office blocks, a condominium, villas and a shopping complex, are worth RM161.09 million.

Keck Seng is sitting on a huge cash pile of RM761 million or RM2.11 per share, according to the 2012 annual report. The cash pile doubled in 2010 financial year (FY10) after it accepted a takeover offer from Khazanah Nasional Bhd for Parkway Holdings Ltd shares.

The company’s palm oil division has been the main revenue earner in the last five years, contributing more than 70% of total revenue. Earnings have been affected by the volatility in commodity prices and weather conditions.

In FY12, Keck Seng saw a decline in revenue from its palm oil and manufacturing divisions. Revenue from its main income earner dipped 25.1% to RM759.47 million from RM1.01 billion a year ago.

The company attributed the decline in earnings to the lower production of fresh fruit bunch (FFB), declining selling prices and higher cost of production.

Its refineries suffered a setback when the Indonesian government implemented  export duties which benefited its own processed palm oil exports last year.

“This development had negatively affected the margins of refineries in Malaysia. On Jan 1, 2013, the country responded with a new export duty structure but the impact  on our refinery is yet to be seen,” the company said in its annual report.

For the six months ended June 30, FY13, Keck Seng’s revenue from its palm oil division dropped 19% to RM311.64 million from RM384.57 million a year ago due to the lower selling price of refined oil.

The company foresees stiff competition in its export of refined oil.

“The performance of the refinery will be very much dependent on the price of other substitute oils and exchange rates of the US dollar against the ringgit while the FFB processed by the mill in 2013 is expected to be marginally higher than that in 2012,” the company said in a statement.  

Keck Seng posted a higher net profit of RM68.55 million in the first half of FY13  compared with RM40.61 million a year ago despite the lower contribution from Keck Seng’s main revenue generator. Earnings were lifted by higher foreign exchange gains.

Keck Seng has delivered consistent dividends at 10 sen per share since 2009. They make up about 30% of the company’s annual net profit.

For FY12 ended Dec 31, the plantation player posted a net profit of RM95.57 million versus a net loss of RM29.83 million a year ago.

The company is 30% owned by the Ho family, with a large portion of it under private vehicle Ho Yeow Hoon & Sons Pte Ltd.

Managing director Datuk Ho Kian Hock has a 6.91% direct interest and another 24.25% deemed interest in Keck Seng.
This article first appeared in The Edge Financial Daily, on November 26, 2013.

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