This article first appeared in The Edge Financial Daily, on December 21, 2015.

KUALA LUMPUR: Oil seed crushing machinery maker Muar Ban Lee Group Bhd, which has embarked on a series of measures to enhance its earnings, expects to seal another merger and acquisition (M&A) deal of a downstream business next year to meet its growth targets.

Its managing director Chua Heok Wee declined to provide its profit guidance for the current financial year ending Dec 31, 2015 (FY15), except to say that the group will continue implement its strategy to enhance its shareholder values and pay dividend based on its financial results.

“We will continue to seek opportunities both locally and overseas, and hope to seal at least a deal in 2016 in order to meet our formulated growth strategies,” Chua told The Edge Financial Daily via email.

He said the group’s next M&A target will be a downstream player, and that it is in talks with “a couple of potential targets” and hopes to conclude a deal in the near future.

As at Sept 30, 2015, Muar Ban Lee’s cash and cash equivalents stood at RM6.36 million.

Since the beginning of this year, Muar Ban Lee has embarked on vertical and horizontal integration to promote the group’s financial growth and efficiency.

“The series of strategies includes enhancing our position in existing markets, seeking growth by exploring new market segments, developing new products, diversifying into new businesses and looking into acquisition opportunities available in the market,” said Chua.

Other than M&As, the management is also talking to a new technology partner from Europe and hopes to launch a new range of products to satisfy its customer needs along the value chain.

“It is part of our new product expansion and market development strategy, and we expect it to contribute significantly to our business and drive us to the next level,” said Chua.

He is of the view that the new products developed with the European partner will allow Muar Ban Lee to access new markets and hence, provide the group significant growth in terms of revenue and profit in the near future.

The management will also deploy the palm oil mill effluent waste water treatment know-how, especially developed from methane capture biogas plants in the palm oil industry, to other industries such as pharmaceuticals and chicken farming.

Currently, 90% of the group’s business is generated from the palm oil mill industry.

Muar Ban Lee saw its net profit grow 26.8% to RM3.75 million for the nine-month period ended Sept 30, 2015 (9MFY15) from RM2.96 million a year ago, on higher project sales. Revenue grew 15.1% to RM40.36 million from RM35.05 million in 9MFY14.

For the full year ended Dec 31, 2014 (FY14), it posted a 35.1% decline in net profit to RM4.1 million from RM6.31 million in FY13, on lower revenue of RM47.32 million, which was down 6% from RM50.34 million in FY13.

Chua said Muar Ban Lee saw earnings fall in the last two years due to the low commodity prices which has affected its business.

However, the group’s recent growth strategies have proven effective based on some early success that saw it clinching new contracts, venturing into a new segment and achieving better profit, he added.

In September Muar Ban Lee had acquired a 51% controlling stake in PT Serdang Jaya Perdana for 15.3 billion rupiah (RM4.7 million), which is involved in the upstream industry of palm kernel oil processing and manufacturing.

It had also clinched a RM16.6 million contract from PT Sari Dumai Sejati in October, to supply 800 tonnes per 24 hours palm kernel crushing plant and ancillary machinery, which is expected to contribute positively to its earnings for FY15 and FY16.

Chua said the group’s venture into the upstream industry is to mitigate the complex and cyclical environment it operates in, which also acts as a platform for research and development of its machinery.

“We have achieved some success in implementing our strategy. The new contract and venturing into the upstream business are part and parcel of our strategic objectives. We opine that we will achieve satisfactory growth and strategic objectives in terms of revenue and profit in coming years by successfully implementing our strategy,” he added.

The group exports its products and services to over 20 countries, with its biggest market being Indonesia.

With the overseas markets contributing 90% of its revenue, the weakening of the ringgit is a boon for Muar Ban Lee as it stands to book in higher foreign exchange gains.

“The majority of our business comes from overseas and is quoted in US dollars. [Additionally,] the depreciation of the ringgit benefits us since majority of equipment is manufactured locally.

“We have also improved our internal efficiency and those strategies will definitely improve our shareholder values,” said Chua.

Muar Ban Lee’s stock has not gained much since its trading debut at 65 sen in October 2009. Its share price has been trading in a 52-week range of 66 sen to 90 sen per share.

It closed 1.95% or 1.5 sen higher at 78.5 sen last Friday, giving it a market capitalisation of RM72.07 million.

Most plantation analysts contacted by The Edge Financial Daily attributed its lacklustre performance to a lack of catalysts. Chua, however, blamed it on the poor equity market sentiment and the fact that the management has not actively engaged with investors.

“We have been paying dividend higher than bank deposit interests since listing and we will continue to do so based on our financial health. In 2016, we will deliver this message and our growth strategies more effectively to our shareholders and financial market by investing in research reports, investor relationship and roadshows,” he said.

Chua said in addition, the group will continue its share buy-back scheme next year to enhance its share price performance.

Chua said Muar Ban Lee (fundamental: 1.25; valuation: 2.6) will also consider further rewarding its shareholders once a memorandum of understanding to dispose of its entire stake in Sokor Gemilang Ladang Sdn Bhd to Kenali Berkat Sdn Bhd for RM35 million has been realised.

“Upon completion of this deal, more dividends, [a] bonus issue and aggressive share buy-backs are within our serious consideration since it will further enhance our shareholder values,” he said, adding that the group will consider establishing a dividend policy to reward its shareholders.