Wednesday 17 Apr 2024
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This article first appeared in The Edge Malaysia Weekly, on September 28 - October 4, 2015.


Lay-Hong_26_TEM1077_theedgemarketsQL Resources Bhd may have given up its plans to privatise Lay Hong Bhd, but the latter’s share price seems to be performing better than ever.

Could the 22% rally in the egg layer’s share price to RM4.30 last week have something to do with the emergence of new shareholders, which includes the ubiquitous investor Chin Boon Long?

Chin is best known for rejecting Ninetology Marketing Sdn Bhd’s 55 sen per share offer for Ingenuity Solutions Bhd (now renamed Ingenuity Consolidated Bhd) back in 2012 when he had a 29.15% stake in the company. Minority shareholders then were left fuming when Chin walked away from an easy RM90 million had he accepted the offer, causing the share price to collapse back to 12 sen.

Apart from his newly acquired 7.4% stake in Lay Hong (fundamental: 0.75: valuation: 1.40), Chin also held substantial stakes in companies like 1Utopia Bhd, Takaso Resources Bhd, Spring Gallery Bhd and Persona Metro Bhd.

In an interesting turn of events, Lay Hong’s controlling shareholder, Yap Hoong Chai, last month took substantial positions in two companies linked to Chin — Takaso (fundamental: 1.65: valuation: 0.30) and Spring Gallery (fundamental: 1.65: valuation: 0.30).

When contacted, Chin declined to comment. At Lay Hong’s general meeting earlier this month however, Yap told the press that he was unaware who QL Resources would be selling the shares to.

So is it merely a coincidence that Yap took positions in companies that Chin was exiting, just weeks before Chin bought into Lay Hong?

Here is a recap of recent shareholding changes:

On Aug 14, Yap, through his 87.5%-controlled Innofarm Sdn Bhd, acquired 13.997 million shares in Takaso, or a 6.815% stake, for an estimated RM7.7 million in an off-market transaction. Including an acquisition of 1.72 million shares on the open market, Yap now has a 7.65% stake in Innofarm.

Chin, along with his brother, used to be one of the largest shareholders in Takaso with a 16% stake at its peak in mid-2014.

Subsequently, on Aug 24, Yap through Innofarm would acquire 7.67 million shares in Spring Gallery (formerly PFCE Bhd) for RM5.06 million or 66 sen a share, through off-market transactions.

Chin did not surface as a substantial shareholder in Spring Gallery, but held a 4.73% stake in the company as at Aug 27, 2014, based on the company’s annual report.

At this stage, it would have been known that QL Resources’ 38.6% stake in Lay Hong was up for sale, with RHB Investment Bank acting as the placement agent. However, it was only on Sept 11 that QL Resources sold its shares to RHB Investment for a mere RM3.05 per share.

This was a 22% discount to Lay Hong’s share price of RM3.90 the same day and a 12.9% discount to the RM3.50 per share voluntary general offer price that QL Resources had earlier offered to privatise Lay Hong last year.

According to Bursa filings, Chin would acquire his 7.4% interest in Lay Hong on the same day, along with Kenanga Investment Bank and Greenfield Hills Sdn Bhd, which took up stakes of 15.56% and 6.3%, respectively.

It is not clear who Kenanga Investment Bank is holding the shares for.

Interestingly, Greenfield Hills earlier this year acquired a 30.9% stake in Spring Gallery. Greenfield Hills was only incorporated in March this year, and bought the major stake in Spring Gallery on May 5. The company is controlled equally by Rabindranah Nandy, 71, and Muahamad Hamizan Megat Shamsudin, 25.

At this point however, it is not clear from whom Yap bought the Spring Gallery shares since it hasn’t been announced yet. Interestingly, the off-market transactions that Yap used to acquire the shares were all in blocks of less than 5%. If no substantial shareholders were involved, no announcement to Bursa Malaysia would be necessary.

As for the shares acquired from Takaso, it appears that the selling counterparty was Tee Tze Chern, whose disposal of some 24.1 million shares in Takaso by his vehicle Nextplus Fortune Sdn Bhd was on the same day Yap acquired his shares.

Although Chin was the managing director of Takaso until he resigned in February this year, he has no direct links to Nextplus, which is 90% controlled by Tee.

Tee, however, was the executive chairman of Takaso while Chin was the managing director.

Interestingly, the registered business address for Nextplus happens to be in the same building as Ingenuity Consolidated Bhd — Persof Tower, in Tropicana Golf & Country Resort.

At the same time, Takaso would be involved in recurring related party transactions (by virtue of Chin’s interest) with both Ingenuity and 1 Utopia worth over RM4.7 million in FY2014.

In a nutshell, Yap has bought into companies where Chin used to be deeply involved, but now appears to be pulling out. However, any direct sale of shares from Chin to Yap for these companies is not apparent.

The coincidences between Lay Hong and Chin do not end there. Kombinasi Emas Sdn Bhd and Sincere Goodyear Sdn Bhd have also emerged as shareholders in Lay Hong, albeit with relatively small stakes.

According to Lay Hong’s annual report, Sincere Goldyear has a 2.99% stake in the company while Kombinasi Emas has 0.43%.

Both companies are controlled by Wie Hock Beng and have substantial stakes in Chin’s other companies.

In Pesona Metro (fundamental: 2.10: valuation: 1.10), Kombinasi Emas and Sincere Goldyear hold 47.02% and 18.4% respectively. In Takaso, they hold 6.02% and 6.3% respectively, although their holdings in Takaso used to be higher — around 10% each.

Wie’s companies had bought into Takaso around the time that Chin was paring down his stake.

Perhaps, Chin’s tangled web of shareholdings can be written off as mere coincidence, but investors can’t help but wonder if his emergence will be a catalyst for Lay Hong’s share price.

He might have only 7.4%, but if past experience is anything to go by, his emergence in a company as a substantial shareholder is often followed by spikes in share price and trading volume.

That said, it looks unlikely that he will take control over Lay Hong which is tightly held by the Yap family, which has 42.79% of the company. Furthermore, at 11.7 times earnings, Lay Hong is the most expensive egg-layer at the moment.

Putting aside QL Resources which has a much more diversified business model, Teo Seng Capital Bhd, LTKM Bhd and Huat Lai Resources Bhd are trading at price-earnings ratios of 7.96 times, 4.8 times and 4.62 times respectively.

Perhaps one catalyst for Lay Hong is the fact that its public shareholding spread has been restored to around 25% to meet Bursa’s requirements. Before QL Resources sold out, it was around 16%, prompting Lay Hong so pursue a private placement — which may now be cancelled — to address the spread.

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