Yeoh’s Alcom coup

He profited by some RM41mil from recent sale of his shares

PROMINENT corporate figure Yeoh Jin Hoe (caricature) has pulled off another coup.

The savvy investor, who shot to prominence following his entry into companies like Kian Joo Can Factory Bhd and his sale of the King Koil mattress licensing business, recently sold half his holdings in Aluminium Company of Malaysia Bhd (Alcom).

What was impressive about the deal is the price which Yeoh got for the block of shares – it was almost double of what he had paid for just under a year ago.

And that wasn’t all. Yeoh’s cost of his shares in Alcom was reduced to a mere 8.5 sen apiece since buying into the company. What this effectively means is that Yeoh profited by some RM41mil from the recent sale of his Alcom shares.

Here’s how this story unfolds.

Yeoh first bought into Alcom in August last year, when his investment vehicle Towerpack Sdn Bhd bought a 59.16% block for 61 sen per share.

Then, two months ago, Yeoh sold half his stake in Alcom, amounting to 29.5% equity, to SCland Holdings Sdn Bhd for RM1.12 apiece.

But before this, Alcom had conducted two corporate exercises which paid out a total of 52.5 sen per share to shareholders.

In April this year, Alcom had proposed to undertake a capital reduction and repayment to its shareholders of up to RM42.99mil or 32 sen per share.

According to a Bursa Malaysia announcement, the capital repayment comes as part of Alcom’s capital-management strategy, which seeks to achieve a more efficient capital structure.

“After taking into consideration the current financial standing, future financial obligations and operational requirements of Alcom, the board has proposed to undertake the proposed capital repayment, which is also intended to reward the shareholders of Alcom for their continuous support towards the group.

“In addition, the proposed capital repayment is expected to enhance Alcom’s return on equity in the longer term, without affecting the number and percentage of Alcom shares held by its shareholders, as a result of the reduced shareholders’ funds of the group,” it said.

Later in May, Alcom’s board of directors proposed a final special single-tier dividend of 20.5 sen per share in respect of the financial year ended March 31, 2017 (FY17).

With Alcom’s combined payout of 52.5 sen per share for both the special dividend and capital-repayment exercise, Yeoh’s share acquisition cost of 61 sen per share is now reduced to 8.5 sen per share.

Hence, after disposing of half of his stake or 29.5% in Alcom to SCland at RM1.12 apiece, Yeoh would have received a gain of RM1.035 per share for the block of shares sold, instead of a 51-sen gain per share.

And this works out to a tidy sum of almost RM41mil.

This figure is also close to Yeoh’s entire original investment cost into Alcom.

Recall that he had paid a total sum of RM47mil for the 59% stake he acquired in the company back in September last year.

“This means he is almost getting his balance stake in Alcom for free,” points out an investment banker.

Note that Yeoh has a remaining 29.72% stake in Alcom, slightly tipping SCland’s 29.5%.

So, considering that Yeoh has made a decent profit from this sale, the question is, did SCland overpay for its purchase?

It does not seem that way. For one, Alcom is trading at an undemanding price-earnings (PE) multiple of 11 times historical earnings. Secondly, the company has a clean balance sheet, with almost RM40mil in cash, which works out to 30 sen per Alcom share.

But what is most impressive about Alcom is that its profits have improved significantly.

In FY17, Alcom registered a more than fivefold increase in its net profit to RM11.61mil, as compared to the previous financial year.

Its earnings before interest, taxes, depreciation and amortisation also grew by 41% to RM24.9mil in FY17.

According to Alcom’s 2017 annual report, the improved profitability was mainly attributed to the management’s focus in pursuing and growing Alcom’s coated fin stock business.

“The operations team effectively maximised the Coater Line 1 to its full production capacity to cater to the growth in coated fin shipment volumes, which increased by 41% over the last fiscal year.

“This resulted in the group celebrating a historical double achievement milestone by recording the highest monthly production and monthly sales volume of coated fin in FY17.

“The weakening of the ringgit by about 4% on average in FY17 as compared to FY16 also had a positive impact on our export sales portion, as it enabled us to price our export products more competitively,” said Alcom, adding that low metal premiums also contributed positively towards the group’s margins.

Following the entry of SCland as a substantial shareholder in Alcom, there has been several changes in the group’s board composition to include SCland personnel.

Last Wednesday, SCland co-founder Datuk Lim Chee Koon was redesignated from executive director to group managing director, while SCland’s other co-founder Datuk Eng Kim Liong and Ang Loo Leong have been appointed as executive directors.

SCland is a property investment and development company with projects in the Klang Valley, Pahang and Sabah.

Going by Yeoh’s proclivity to mergers and acquisitions, he will continue to be a personality to watch.