Wong Engineering turning around
THE name Wong Engineering Corp Bhd may not ring a bell among most seasoned investors but the company, a manufacturer of high precision component parts for various industries, has undergone some notable changes of late.
For one, the smallish firm has made a turnaround in its financials based on its latest quarterly results, reporting a net profit of RM3.05mil compared with a net profit of RM82,000 for the same period, a year ago.
This marks a relatively quick turnaround, considering the company has been in the red for a number of years, although it did report a small profit of RM715,000 in FY16.
Revenue for the most recent quarter – its third for FY17 – also stood at a higher RM11.86mil against RM8.79mil earlier.
According to the notes accompanying its results, Wong Engineering’s improvement in financials is attributed mostly to “cost improvement” and “better operational efficiency”.
Clearly this marks a change of sorts in the way the company is running its existing business. Market observers also point out that in the past few years, Wong Engineering had been on the market for potential buyers as its founders - comprising brothers Datuk Wong Kem Woh, Kem Chew and Kam Hooi - were keen to exit.
That takeover eventually materialised. So who is in control of Wong Engineering now? The Penang-based company is now led by the owners of Tiong Nam Logistics Holdings Bhd, the RM700mil logistics giant which launched a takeover for the company back in August 2016.
Back then TNTT Realty Sdn Bhd, the private vehicle of Tiong Nam Logistics managing director and founder Ong Yoong Nyock had launched the takeover at 65 sen a share.
TNTT and one Yong Loy Huat, who is the brother in-law of Ong, had bought 39.42 million Wong Engineering shares or a 43.07% stake at that point for RM25.62mil via a business transaction.
Based on Wong Engineering’s latest annual report, TNTT is now the single largest shareholder in the firm via a 30.048% stake while the managing director at Wong Engineering is Yong. Wong Engineering’s shares meanwhile have gained about 45% since last September and last traded at RM1.05 a piece. In fact, a steep rise was seen right after Wong Engineering reported that RM3.05mil profit less than a month ago. Since then, the stock has added over 23%. This suggests that some investors have started to take notice of this low-profile company. Annualising the RM3.05mil profit meanwhile would give Wong Engineering an annual profit of around RM12mil, which would make its valuations attractive, points out a dealer.
In this sense, because Wong Engineering has a market capitalisation of a mere RM96mil, a RM12mil profit would mean the stock could potentially trade at an attractive earnings multiple of eight times.
Moving forward, observers don’t rule out the possibility of Tiong Nam or its owners privately injecting new businesses into Wong Engineering.
Founded in 1975, Tiong Nam has expanded from a small-scale cargo business to a total logistics provider. Its range of services include customs forwarding, cold room facilities and express delivery as well as crane and forklift rental.
According to information on group’s website, Tiong Nam owns more than 60 warehouses in the region, with a combined storage capacity of over 3.5 million square feet.
It is also the largest trucking company in Malaysia, with a fleet of close to 2,000 trucks of various capacities including open, box/ bonded and refrigerated containers, enabling it to transport goods of varying temperatures including dry, chilled and frozen.
Notably, Tiong Nam manages one of the largest cold room operations in Malaysia, with warehouses in Kampung Baru Hicom, Shah Alam and in Bangi, Selangor.
In its annual report, Wong Engineering says for the next phase of growth, the group is “actively seeking business opportunities in new markets to diversify its revenue streams and improve its financial performance.”
Given the competitive business environment in the metal fabrication industry which it is present in, it says the group has identified construction, property development and trading of construction materials as new business segments to diversify its revenue sources.
“The group will be able to leverage on the experience and expertise of its directors and key management who have proventrack records in these new markets and the board is of the view that the proposed diversification will contribute positively to the future earnings of the group.”