KUB unlocks value for future growth
Asset sales put company in plum cash position
OVER the last two weeks, KUB Malaysia Bhd announced two sets of asset disposals that will see the company raise Rm238mil.
That is no small sum for the company, considering that it amounts to more than KUB’S current market value, which stands at Rm230mil. The Rm238mil also works out to 42 sen per KUB share, which closed on Friday at 41 sen apiece.
It is noteworthy that KUB was already in a net cash position of Rm28.34mil as of March 31, 2020.
KUB’S chairman and single largest shareholder, Datuk Seri Johari Abdul Ghani, says that the company plans to utilise the proceeds from the disposal to expand its core businesses. He does not rule out potential merger and acquisition (M&A) exercises towards this end.
He also rules out any significant special dividends following this sale. “We are a growing company. That’s our focus now,” he tells Starbizweek.
He adds that KUB is still in the midst of its restructuring that entails disposing of noncore assets and expanding its core businesses via acquisitions or investments. Presently, KUB has six businesses, ranging from liquefied petroleum gas (LPG) operations to power, telecommunications, plantation and property businesses.
Its LPG bottling business is the biggest contributor, making up 80% of KUB’S revenue followed by its plantation business (11%), with the balance coming from the telecommunications, power and property businesses.
Moving forward, Johari points out that KUB will focus on the LPG and telecommunications sectors.
“Instead of raising more money through a rights issue for example, we would prefer to monetise non-core assets to expand existing businesses,” he says.
This week, KUB announced that it is selling one of its prized assets – a sanitary landfill located in Bukit Tagar, Selangor.
The landfill is run by concessionaire KUBBerjaya Enviro Sdn Bhd, which is a 60:40 joint venture between Berjaya Corp Bhd and KUB.
KUB is selling its 40% stake in Enviro to Berjaya Corp for Rm80mil cash.
In a filing with the exchange, KUB said KPMG Corporate Advisory had valued its stake at between Rm77.55mil and Rm84.5mil.
“We think that this sale is a good way to maximise the value of our assets. We didn’t own a controlling stake in the venture and it also did not provide us with very lucrative dividends,” he says.
Prior to that, on June 10, KUB said it is selling part of its oil palm plantation assets.
The sale is of its 2,656.16ha in Kluang, Johor at a price tag of Rm158mil.
The filings pointed out that the price represents a premium of Rm2mil or 1.3% above the market value, as appraised by C H Williams.
“The group would also be able to avoid incurring significant capital expenditure for the estates going forward, as the majority of its oil palm areas are categorised as old and would need to be cleared and replanted in phases in the coming years,” KUB said.
According to Johari, more asset disposals are in the pipeline, that includes its other oil palm plantation estates located in Sabah and Sarawak.
“Our plantation assets are scattered in three different states.
“They do not enjoy economies of scale,” Johari explains.
An ideal size for oil palm plantations to have a meaningful cost advantage is about 40,000ha, and since land is getting scarce, it would be a challenge to grow KUB’S plantation business, Johari reckons.
In total, KUB owns 8,866ha of oil palm plantation area located in Johor, Sabah and Sarawak.
Johari, who was a former Finance Minister 2, emerged in KUB last April after he bought 32% of the company for Rm121.09mil or 68 sen a share.
He bought the block from Anchorscape Sdn Bhd, a special-purpose vehicle related to political party Umno.
Following the sale, Umno now owns 20% of KUB.
Johari has since then increased his holdings in KUB to just below 33%, which is the threshold for a mandatory general offer. Filings show that Johari acquired shares from the open market when the market dipped following the onset of the coronavirus. KUB had hit a low of 16 sen on March 18.
When asked about a potential privatisation of KUB, Johari says he prefers to keep KUB as a listed company.
Despite the recent recovery in KUB’S share price, Johari is still sitting on paper losses of about Rm45mil, based on his earlier entry cost of 68 sen a share.
Soon after buying into KUB last March, Johari had told Starbizweek that the value in KUB “had not been properly explored” and that its assets could be unlocked with the right management team.
Currently, KUB’S share price is trading below its net tangible asset (NTA) of 60 sen a share.
One of the reasons why KUB has not been on investors’ radar is the fact that its main business – its LPG division – has not been producing significant profit margins.
But Johari, who is known for turning around consumer-related companies, reckons that the LPG business holds much potential.
He adds that KUB has been working to improve the margins of the business, with one example being the setting up of a new bottling plant.
In the late 1990s, Johari was linked to KFC Holdings Malaysia Bhd, a company that faced numerous corporate tussles.
That episode made him a household name in the corporate world.
After his exit from KFC, Johari bought into CI Holdings in 2005. While at CI, he proved his ability to turn around the business.
In 2011, CI Holdings disposed of its main asset Permanis Sdn Bhd, a soft drink bottling plant, to Japanese beverage giant Asahi Group Holdings Ltd for a whopping Rm820mil. Permanis is the official bottler for Pepsico in Malaysia and produces other drinks like Mirinda, 7-Up, Gatorade, Lipton, Tropicana and Evervess.
It was said to be a record transaction value for the fast-moving consumer goods (FMCG) business back then.
More impressive was the fact that CI Holdings had only paid Rm72mil for Permanis in 2005.
Back to KUB, with Rm200mil of new capital in place, and possibly more M&A activity to be embarked on, it remains an interesting company to watch.
“Instead of raising more money from a rights issue for example, we would prefer to monetise non-core assets to expand businesses.” Datuk Seri Johari Abdul Ghani