This article first appeared in The Edge Malaysia Weekly on June 12, 2023 - June 18, 2023

ACE Market-listed scheduled waste recycling company Tex Cycle Technology (M) Bhd, which saw the emergence of Keh Chuan Seng and Lee Hai Peng as substantial shareholders in early May, is actively seeking mergers and acquisitions (M&A) opportunities.

In fact, Tex Cycle CEO Gary Dass is hopeful that the first major deal could materialise this year. He attributes the push for M&A to the new shareholders.

“Our new executive chairman [Keh] and new executive director [Lee] are ambitious. They have more appetite for business growth and they are very clear in terms of making better profits for the group by way of organic growth plus M&A as a long-term plan,” he tells The Edge in an interview.

“To top it all, it has been less than two months since we had this change [of major shareholders] but there is already a change in the culture of Tex Cycle to a more dynamic-driven direction.”

Dass reveals that his team has already identified a few potential M&A candidates, including its industry peers, that could complement Tex Cycle’s existing businesses and help accelerate its growth.

“We are still on the lookout for more related businesses from which we can derive synergies. Our corporate strategy now is to focus on business growth and boost our bottom line via M&A and organic growth,” he says.

Chief financial officer (CFO) Geraldine Hii Siaw Wei highlights that Tex Cycle has a strong balance sheet, with net cash of RM4.7 million as at March 31, which allows the group to undertake more M&A as it seeks business growth.

“Funding new M&A wouldn’t be a major concern to the group as we have many options to tap into, such as our internal funds or fundraising exercises as and when required. The new owners may look into monetising or divesting some of our non-core investments and assets after further due diligence is carried out,” she says.

Keh emerged as the single largest shareholder of Tex Cycle on May 2 after acquiring 67 million shares, or an indirect stake of 26.43%, via a direct business transaction made by his property firm Frazel Group Sdn Bhd on April 27.

On the same day, Lee became a substantial shareholder of Tex Cycle after acquiring 13 million shares, or a direct stake of 5.13%, in a direct business transaction.

Their blocks of shares were acquired from Tex Cycle’s previous major shareholder Can Cycle Sdn Bhd, which disposed of its entire 31.56% stake, or 80 million shares, in a direct business transaction on April 27.

Klang-based Can Cycle is a private vehicle jointly owned by low-profile businessman Ho Siew Choong and his brothers Ho Siew Cheong and Ho Siew Weng, as well as Periasamy Sinakalai, better known as S Perry.

The 52-year-old Keh is executive chairman of stainless steel maker K Seng Seng Corp Bhd and non-independent, non-executive chairman of electronics manufacturing services (EMS) firm EG Industries Bhd as well as telecommunications service provider HB Global Ltd. He also serves as a committee member of the Kedah Chinese Chamber of Commerce and Industry.

According to Tex Cycle’s filings with Bursa Malaysia, Keh began his career in real estate development in Japan. During his tenure there, from 1991 to 2005, he was involved in local and international property development, as well as the hospitality, agriculture, asset management and financial industries.

As executive chairman of property developer Frazel Group, Keh focuses on housing construction projects.

“Keh entered the property development business in Kedah as well as Sadao, a district in Songkhla province in southern Thailand, in 2010. His diverse experience includes food and beverage businesses in Japan, as well as the niche bird nest trading and evergreen fisheries industry in Malaysia,” according to Tex Cycle.

Meanwhile, 57-year-old Lee is currently a non-independent, non-executive director of Solarvest Holdings Bhd, as well as an executive director of K Seng Seng Corp. He joined Chin Hin Group Bhd in 2008 as group accountant, before being promoted to group financial controller the following year. He was made executive director in 2015, a position he held until December last year.

Lee was appointed executive director of Tex Cycle on April 28, while Keh was named executive chairman on May 3.

When contacted by The Edge, Lee says that after he resigned from Chin Hin in December last year, he started pursuing his own business interests with his business partner Keh. One of the areas in which they see growth potential is the green and environmental business sector. 

“We decided to invest in Tex Cycle because it is a profitable entity and we see potential growth in its future earnings. Moreover, it has a strong balance sheet and quality asset value,” he adds.

“Our role is to create and add value to the group, given our wide range of corporate experience, expertise and business network. We are advancing towards a long-term corporate strategy and, for sure, we are not here for short-term profit-taking.”

He adds that under the new owners, Tex Cycle will step out of its comfort zone as it aims to achieve more significant business growth. “We believe we are more open to undertaking M&A for the greater good of the company. As shareholders, we are definitely more zealous and active on the corporate scene, and we will play a more corporate role on a strategic scale to boost Tex Cycle’s brand in the industry.”

Keh and Lee have their sights on another listed company. Last Wednesday (June 7), they emerged as substantial shareholders of Ge-Shen Corp Bhd. They were appointed executive directors the day before.

Keh, via Frazel Group, holds a 27.9% stake in Ge-Shen, whereas Lee has a 3.8% stake in the contract manufacturer in his personal capacity. At 27.9%, Frazel Group is the second-largest shareholder of the company after Pelita Niagamas Sdn Bhd.

During the interview, Dass and Hii assured that the key management personnel of Tex Cycle are crucial to the company’s future growth and expansion.

“The key management has stayed put even after all the years of service in the company. Tex Cycle is a very niche player in a booming sector. With the entry of new major shareholders, the board has gone through a couple of changes. However, we as the CEO and CFO will continue to handle the day-to-day business operations,” says Dass, adding that Tex Cycle already had a succession plan in place before Can Cycle’s exit.

“Our company has been running under the trained internal management team led by myself as the CEO and Geraldine as the CFO since 2019. The previous executive directors were there as a means of support and guidance in grooming us to manage the company.

“That’s why Geraldine and myself have always been seen as the successors of the previous shareholders, which would [free] any potential new investors [from] worrying about training the key management once there is a takeover.”

Hii points out that for the both of them, it is all about growing Tex Cycle further with the support of the new shareholders.

The share price of Tex Cycle had gained 87% year to date to close at 76 sen last Wednesday, giving the company a market capitalisation of RM194.73 million. The counter is currently trading at a historical price-earnings ratio of 19 times.

Investor interest in the stock picked up in January, when the share price shot up to 87 sen from 40.5 sen in just three weeks.

In terms of the company’s financial performance, its net profit jumped from RM3.29 million in the financial year ended Dec 31, 2020 (FY2020) to RM6.15 million in FY2021, before growing further to RM9.74 million in FY2022.

Dass says his focus is to expedite all existing projects and ventures into operational stages so they can contribute significantly to the group’s bottom line in the near term. “We hope to be able to achieve higher growth in terms of revenue and profit with the organic growth and M&A in place to be our main growth drivers.

“Our main operation in Telok Gong will remain our core business, but we are looking for more players and partners to collaborate with to further boost our top and bottom line. Given our big capacity there, we still have room to grow in our core business.”

Meanwhile, Tex Cycle is expanding its core business by teaming up with Evolusi Synergy Sdn Bhd to put up a three-phase scheduled waste treatment plant on a 50-acre industrial land in Sipitang, Sabah.

“Our target customers are oil and gas companies. The whole project will be spread over five to eight years. It is our ultimate goal to be able to support the Borneo waste management sector,” says Hii.

“We are in the midst of obtaining all the necessary approvals to set up the plant. About RM20 million will be invested for the first phase, which is slated for completion by the fourth quarter of next year.”

She adds that Tex Cycle intends to migrate to the Main Market but there is no specific time frame at the moment. However, with the new shareholders and directors on board, she is confident that the move, as well as the group’s plans, will materialise sooner rather than later.

The investors who have picked up Tex Cycle’s shares since the run-up in its stock price seem to agree.

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