Tan — Eng Kah stake purely investment

by **Cals** Tue 10 Jun 2014, 03:11

Business & Markets 2014

Written by Wei Lynn Tang of theedgemalaysia.com

Monday, 09 June 2014 09:31

KUALA LUMPUR: Tan Thiam Hock, who recently emerged as a substantial shareholder in Eng Kah Corp Bhd, has dismissed any potential alliance between the manufacturer of personal care and household products and privately-held Alliance Cosmetics Group (ACG) which Tan founded.

On May 30, Tan had emerged with a 5.03% stake or 3.56 million shares in Eng Kah, which has an issued share base of 70.76 million.

“It’s just an investment,” Tan told The Edge Financial Daily of his stake in Eng Kah. He declined to comment whether he plans to increase his stake in the company.

According to the company’s 2013 annual report, Tan had already owned a 4.89% stake in Eng Kah as at May 5.

“It is good that he [Tan] is now a substantial shareholder. [This shows that] he has confidence in the company… We believe this would enhance the confidence of investors,” said Eng Kah when contacted.

It would seem that Eng Kah and ACG have complementary businesses. Eng Kah’s core strengths lie in its manufacturing and research and development capabilities, while ACG focuses on distribution and marketing.

Eng Kah, however, also dismissed any collaboration between the two companies for now.

ACG owns the Silky Girl, Stage and SG Men brands, and distributes Revlon, Avene and Elancyl products. ACG is currently a customer of Eng Kah, contributing “several per cent” to its revenue, said Eng Kah.

Today, private equity funds Ekuiti Nasional Bhd (Ekuinas) and Navis Capital Partners own an 80% stake in ACG. While Tan is no longer the head of ACG, he has a seat on the board.

Eng Kah’s revenue and net profit for the financial year ended Dec 31, 2013 (FY13) fell 23% and 40% respectively to RM65 million and RM7.8 million compared with FY12. Net margins also dropped from 15% to 12%.

Its revenue for FY13 was the lowest in the past five years; while profit also came in second lowest, slightly above FY09’s.

Despite that, it paid out dividends of RM15.6 million or a dividend per share (DPS) of 22.5 sen in FY13 out of its profit and retained earnings — as it exceeded its earnings per share (EPS) of 11.22 sen. For the past three years, it had consistently paid out DPS of 22.5 sen, more than its EPS.

Based on its closing share price of RM2.45 last Friday, and an annual DPS of 22.5 sen, the stock yields a decent 9% and has a market capitalisation of RM173.36 million. It is valued at 21.84 times price to FY13 earnings.

As at March 31, it had zero borrowings and sat on net cash of RM17.8 million.

For the first quarter ended March 31 (1QFY14), revenue and net profit dipped 13% and 26% respectively to RM15.1 million and RM1.39 million from a year ago.

The company attributed the lower revenue to fewer orders placed, along with a change in product mix which resulted in a lower pre-tax profit margin.

Still, Eng Kah paid out one sen in DPS for 1QFY14 — compared with five sen per quarter in the past quarters — in view of staying prudent on lower profit gained, said the company.

The company, while acknowledging that net profit in FY13 and 1QFY14 were lower, pointed out that it remains profitable.

Eng Kah told The Edge Financial Daily that it hopes its performance will “pick-up” in the second half of FY14, on the back of stabilising market conditions and potential orders coming in from new customers.

However, it declined to comment on prospects from its 30:70 joint venture with Cosway (China) Co Ltd. Cosway Malaysia is currently its major customer.

“We will have more clarity come the second half of the year in terms of our performance, as we are waiting to firm up orders from potential customers (both local and overseas) which includes multi-national companies,” Eng Kah said.

Besides Tan, other major shareholders of Eng Kah include CAM-GTF Ltd and Raffles-Asia Investment Co, which held a 9.59% and 5.31% stake respectively as at May 5. Ewe Eng Kah, the founder, and Neoh Lay Hwa collectively own 39.55% in the company.

This article first appeared in The Edge Financial Daily, on June 9, 2014.