Meek response to takeover offer puts Rex in the spotlight
THE meek response to an offer from the major shareholder of Rex Industries Bhd to mop up the rest of the shares is a firm indication that the market feels the value of the company is much higher than what is on the table.
Going forward, Rex Industries major shareholder Darmendran Kunaretnam has to prove to the market that they were not wrong by judging that his offer to sweep up the rest of the shares at RM1.65 undervalued the company.
A company official says substantial works and efforts need to be carried out over the next few quarters for the company’s results to reflect the valuations that the market has accorded the stock.
“We appreciate (that) the market values Rex Industries higher than the price offered for the mandatory general offer,” the spokesman tells StarBiz.
Darmendran triggered a conditional mandatory takeover offer for Rex Industries on Feb 7, when Daiman Taipan – an investment vehicle that he substantially controls – bought a total of 4.54 million additional shares in the company via open market for RM7.36mil.
The independent adviser, Mainstreet Advisers, recommended shareholders to reject the takeover offer, as it deemed it “reasonable but not fair”.
Mainstreet also gave shareholders a choice to exit their investments in the group by selling shares in the open market, if they are able to obtain a price higher than Daiman’s offer price of RM1.65 per share.
The conditional mandatory offer received a paltry response as the offer lapsed on March 21. Only shareholders with 5,000 shares accepted the offer.
Rex Industries’ share price is not only trading above the offer price, it is also the highest since June 2002.
Since the conditional mandatory offer, Rex Industries’ shares rose 13.77% to close at RM1.90 yesterday. At this price, the company has a market value of RM117mil.
Darmendran holds a 54.99% interest in Daiman while Chee Cheng Chun, Rex Industries’ non-executive director, owns the remaining 45% stake. Darmendran’s spouse, Leong Kwai Ying, on the other hand, has one share in the investment vehicle.
The Main Market-listed Rex Industries was incorporated in 1972 and is involved in the manufacturing and distribution of canned food, frozen food and drinks.
With two manufacturing facilities located in Bukit Minyak, Butterworth, and Indonesia, the US is by far the largest export market for Rex Industries, followed by Indonesia, China and Europe.
In fact, it is learnt that Darmendran is actively going to the US to meet potential clients and
open new channels of distribution there.
“We are hard at work both in Malaysia and across the export markets to achieve results,” according to the official.
Apart from that, the official says the company intends to grow its market share in Asean and the Middle East.
“Asean will be the next growth area for Rex Industries. The group intends to shift its focus and resources closer to home markets, mainly in Malaysia and Indonesia, by streamlining its Malaysian and Indonesian operations,” he says.
Rex Industries has changed its financial year end from December 31, 2015 to June 30, 2016.
Malaysia contributes the highest to the group’s revenue at RM102.3mil in 2016, followed by the US (RM59.6mil), Asia (RM50.97mil) and Europe (RM29.9mil).
Rex Industries’ domestic initiatives have yielded some encouraging results, as it posted a revenue and net profit of RM67.63mil and RM3.82mil, respectively, for the first half of financial year ended June 30, 2017.
This was a turnaround from the previous financial year, where it made losses of RM4.79mil in the 18-month period ended June 30, 2016.
Rex Industries’ price-earnings (PE) is not reflected and its 12-month earnings per share is negative 0.09 sen.
As at Dec 31, 2016, Rex Industries’ net assets per share stood at RM2.20, while its cash and cash equivalents amounted to RM15.49mil.
It is not fair to make direct comparison with other food and beverage players in the industry, as everyone has their own niche and has a little bit of everything.
However, biscuit players such as London Biscuits Bhd and Hup Seng Industries Bhd are trading at a PE of 7.99 times and 19.29 times.
In terms of margins, London Biscuits made gross profit margin of 21.3% for financial year 2016, while Hup Seng’s was 40.5%.
Rex Industries has been making efforts in the last two years to expand its distribution channels and diversifying its product mix to boost earnings. It enhanced its product mix and range to include new energy and flavoured drinks such as Rexbul and Rexberry, among others.
On Dec 31, 2015, Rex Industries bought the entire stake in Kuchingbased Summit Teamtrade Sdn Bhd, a flour-based products manufacturer, for RM800,000 to diversify its product mix to include biscuits.
“The move to buy Summit is part of Rex Industries’ organic expansion by venturing into biscuits manufacturing. It will also provide higher margins,” says the official.
A year after that, Rex Industries emerged as a substantial shareholder in biscuit maker Hwa Tai Industries Bhd with a 5.61% stake after buying 4.2 million shares in the company via the open market. This is an investment as it saw earnings potential in Hwa Tai.
Amid the challenging economic landscape and China’s slowdown, Rex Industries sold its wholly-owned unit Jie Yang Rex Foods Co Ltd (JYR) to Lee Chai Seng for RM21mil cash. Lee has a 17.4% stake in Rex Industries and is JYR’s executive chairman.
An accounting graduate from Universiti Kebangsaan Malaysia, Darmendran was appointed as Rex Industries group managing director on March 3, 2015. He is also chairman of the remuneration committee.
He has successfully listed two companies during his career, the first being Gold Bridge Engineering and Construction Bhd on the Main Market of Bursa Malaysia in 1996, where he was general manager of finance and corporate planning division.
Subsequently, in June 1997, he restructured and listed Safeguards Corp Bhd and was appointed to the board of Safeguards two months later.
In 2007, he and his partner took Safeguards private.
Aside from the present MD and executive director positions at Rex Industries, Darmendran and Chee hold 35.65% interest in the recently delisted Kejuruteraan Samudra Timur Bhd and control 55.2% of the company with Datuk Chee Peck Kiat @ Chee Peck Jan.
Darmendran and his partners at Safeguards are also said to be the controlling shareholders of Saito College that provides, among others, graphic design and business-related courses.