THE usually quiet Chin Teck Plantations Bhd made the headlines in local dailies last week after Malayan Banking Bhd (Maybank) co-founder Gan Boon Koo surfaced as a substantial shareholder in the oil palm plantation company.

Gan, who has been a shareholder of Chin Teck Plantations since 2008 through his interest in Gemas Bahru Estate Sdn Bhd, on June 26 upped his stake in the company to 8.6% or 7.87 million shares via his primary investment vehicle, Gan Teng Siew Realty Sdn Bhd. He had held 3.85% previously.

The 87-year-old also has investments in two other plantation companies — Kim Loong Resources Bhd and Hap Seng Plantations Holdings Bhd — under Gan Teng Siew Realty, Bloomberg data shows.

But of the three companies, Chin Teck Plantations appears to be his largest investment. Gan’s exposure to Hap Seng Plantations (fundamental: 2.70; valuation: 1.40) through his flagship vehicle and other companies is 1.62% while his investment in Kim Loong Resources (fundamental: 2.50; valuation: 1.40) is 0.96%.

Gan’s move to raise his stake in the docile Chin Teck Plantations has piqued the curiosity of many in the market.

For one, the counter is thinly traded and on some days, not traded at all. About 36.67% of the shares are held by Tiong Thye Co Bhd. Over the last year, Chin Teck Plantations’ highest average daily trading volume was only 45,000 shares. By comparison, that of Hap Seng Plantations and Kim Loong Resources was 665,000 shares and 508,000 shares respectively.

Given its illiquidity, the counter could prove to be a problem for Gan if he wanted to offload his stake in the company in the future.

The stock fell 6% to RM8.70 on volume of just 1,000 shares on June 30 — the only day there was trading activity in it following Gan’s purchase of shares on June 26 — underscoring its illiquid nature. And as steeply as it fell, it rebounded to RM9.28 on July 2 on volume of a mere 300 shares.

But while the lack of liquidity in its stock may be a turn-off to many investors, Chin Teck Plantations’ generous dividends could well make up for it. In its financial year ended Aug 31, 2014 (FY2014), the planter dished out a total dividend of 42 sen per share. Based on its closing price of RM9.28 last Thursday, the dividend yield was 4.5%.

For the first six months of FY2015, the company rewarded its shareholders with 8 sen per share.

Industry observers say Chin Teck Plantations, like Gan’s other two plantation investments, is relatively well run.

According to its 2014 annual report, annual fresh fruit bunch (FFB) yield per hectare was 18.88 metric tons while the oil extraction rate (OER) of its three mills was 19.15%.

This is within the average FFB yield and OER of plantation companies in Malaysia. Statistics from the Malaysian Palm Oil Board (MPOB) show that the average FFB yield for 2014 was 18.63 metric tons while the OER was 20.6%.

Chin Teck Plantations’ total planted area stood at 10,925ha in FY2014, of which 7.73% were immature trees. Of the mature trees, 37.68% were aged 21 to 25 years while 21.92% were below six years. Trees in their prime — around 11 to 15 years —  made up about 0.29% of the planted area while those aged 6 to 10 years accounted for 16.69%.

The company plans to replant some 1,100ha of old and low-yield palms in FY2015.

Like many plantation companies, Chin Teck Plantations’ balance sheet is clean with the absence of borrowings. As at Feb 28, 2015, it had a cash pile of RM212.05 million and net assets per share of RM6.89.

Net profit for the first six months ended Feb 28, 2015, declined to RM10.13 million from  RM15.15 million in the previous corresponding  period while revenue dipped to RM46.97 million from RM59.36 million. The declines were due to the lower average selling price of FFB and crude palm oil (CPO) as well as the lower selling volume of FFB.

Indeed, the last few years have been challenging for plantation companies with the downward trend in CPO prices, which currently stand at RM2,271 per metric ton — a stark contrast to 2011 when they were as high as RM3,967 per metric ton.

Chin Teck Plantations also faces problems with its joint-venture oil palm plantation investments in Indonesia in the provinces of Lampung and South Sumatra, where there has been unrest. In FY2014, it reported that it suffered a RM4 million loss in its share of earnings from its Indonesian investments.

The situation seems to have eased in Lampung and harvesting has commenced, although  there is no clearance yet from the authorities in South Sumatra.

Given the lower profits achieved by Chin Teck Plantations so far this financial year, the uncertainty over its joint-venture investments in Indonesia and the weakness in CPO prices, only time will tell if Gan took a right bet on the company.

This article first appeared in The Edge Malaysia Weekly, on July 6 - 12, 2015.

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