KUALA LUMPUR: The heated takeover battle for Singapore-listed Parkway Holdings has created a windfall for a little known Malaysian beneficiary.

Low profile plantation and property player Keck Seng Malaysia Bhd is set to reap a large amount of cash, amounting to RM327.49 million, from the proposed disposal of its 3.13% stake in Parkway Holdings Ltd.

With this sale, the already cash-rich company will see its net cash pile rise further to RM679 million, or RM2.81 per share. This is almost half its current market capitalisation of RM1.4 billion, based on the last traded price of RM5.79.

Keck Seng is one of the unexpected beneficiaries of the two-month tussle for control of Parkway between Khazanah Nasional Bhd and India’s Fortis Healthcare Ltd.

In the end, Malaysia’s Khazanah emerged victorious making the S$3.95 (RM9.21) per share cash offer on July 26 versus S$3.80 by Fortis.

On August 6, shareholders of Keck Seng approved the planned sale of its stake in Parkway to Khazanah’s subsidiary, Integrated Healthcare Holdings Ltd, the vehicle for the deal.

The company already had cash of RM351.82 million and zero borrowings as at Dec 31, 2009. Adding the Parkway proceeds will give the company total cash of RM679.31 million, or RM2.81 per Keck Seng share based on its issued base of 241.39 million shares.

The large cash reserves raise the possibility of potentially higher dividends.

Indeed, most analysts expect the extra cash from the Parkway sale to translate into higher dividends. Standard & Poor’s Equity Research in an Aug 9 report has raised its 2010 dividend expectation to 15 sen per share from 10 sen per share.

Asset-rich, most properties not revalued for decades
Keck Seng has four major operating segments — manufacturing, processing and marketing of refined palm oil products; hotels and golf resorts; property development and investment; and the cultivation of palm oil plantations.

For FY2009, manufacturing made up 70% of the RM913 million revenue, hotels and resorts contributed 12.9%, property development made up 8.2%, oil palm plantations 3.2% and share investment contributed 5.7%.

Parkway has sizeable plantations and property assets. Most of its plantation and property assets have not been revalued for decades, and have low book values which appear to be below market valuations.

Its Parkway stake, for instance, was acquired at low costs. From the disposal proceeds of RM327.49 million, the company will book in a one-off gain of RM260.14 million, implying investment cost of just RM67.35 million.

This will increase Keck Seng’s Dec 31, 2009 net assets per share from RM4.98 to RM6.07, slightly above the current share price of RM5.79.

The book value of its other assets have not been revalued for a long time and also appear undervalued.

Based on the company’s annual report for the financial year ended Dec 31, 2009 (FY2009), the last time its property and plantation landbank, mainly
located in Johor, was revalued was in April 1980.

Keck Seng has a total planted area of 3,673 ha, which produced 77,571 tonnes of fresh fruit bunches in FY2009.

Land held for property development in the southern state include the 208ha Tanjung Puteri Golf Course In Pasir Gudang, and residential /commercial land in several developments, namely Tanjung Puteri Resorts in Pasir Gudang (3.9 million sq m), Bandar Baru Tangkar Pulai in Pulai (2.13 million sq m) and Taman Daya, 13km from Johor Bahru (522,647 sq m).  

Keck Seng also has an interesting portfolio of commercial properties.

The main assets consist of two hotels — the Doubletree Alana Waikiki hotel in Honolulu, Hawaii and Doubletree International Plaza in Toronto, Canada, the Menara Keck Seng office tower along Kuala Lumpur’s Jalan Bukit Bintang and the Regency Tower serviced apartments on Jalan Ceylon in Kuala Lumpur.  

As for the buildings, most of the valuations were done in 1996-2000, with the latest in July 2006 for the Regency Tower apartments.

Menara Keck Seng was last valued in August 1996 at RM58.645 million for a floor area of 24,538 sq m or 264,125 sq ft. This translates into a book value of just RM222 per sq ft. In contrast, current property values for prime Kuala Lumpur office space is estimated at RM700 to RM900 per sq ft, on a net lettable area basis.

This article appeared in The Edge Financial Daily, August 17, 2010.