Businessman plans to turn around hUB
DATUK Seri Johari Abdul Ghani is no stranger to the local corporate scene. His long association with KFC Holdings Malaysia Bhd made him a household name, especially to reporters covering the many hard-fought tussles for control of the fried chicken retailer in the past.
Following his entry into CI Holdings Bhd in 2005, Johari reaffirmed his ability to add value and turn around companies. Now, all eyes are on what he will do with KUB Malaysia Bhd, which he bought into four months ago.
By the look of things, Johari has already devised a turnaround plan for the company.
This would include asset disposals, rationalising the workforce, increasing plant efficiencies and consolidating businesses.
“I have a penchant for companies that own under-performing assets with potential for growth and expansion.
“I see my investment in KUB as an opportunity to turn the company around and realise its true potential,” Johari tells StarBizWeek.
Hitherto, KUB has not been known as a company that sought aggressive growth or sweat its assets in any big way.
KUB originated as a bumiputra-controlled co-operative known as Koperasi Usaha Bersatu Malaysia Bhd. Back in the day, it engineered the reverse takeover of Permodalan Perak Bhd and was subsequently listed on Bursa Malaysia in 1997 as KUB.
One of the assets it was known for was its A&W franchise.
However, that asset was sold last July for RM34mil to parties linked to Ang Choon Yan, himself the founder of a number of food and beverage businesses through Revenue Valley Sdn Bhd. Note that in 2012, Ekuiti Nasional Bhd (Ekuinas) forked out a whopping RM64.7mil for an 85.76% stake in Revenue Valley, which owns and operates seafood restaurant chain Manhattan Fish Market, the Malaysian franchise of Tony Roma’s and the Malaysia and Singapore franchises of Popeyes.
Interestingly, but not surprisingly, considering his many years at KFC, Johari says he wishes KUB still had the A&W business.
KUB’s share price has remained unexciting for a long time. In the past five years, its stock has traded at an average price of 37.9 sen a share. And that too was largely because speculators began buying into the counter earlier this year on rumours of it being a takeover target. The stock reached a high of 57.3 sen in March 2017.
It is noteworthy that Johari bought his KUB stake in early March at 68 sen per share. Despite being down by more than half of his capital invested, Johari reckons that there is value to be extracted from KUB.
Recently, KUB disposed of its palm oil mill located in Mukah, Sarawak, for RM44.8mil.
It has also earmarked to sell a piece of leasehold land in Petaling Jaya, Selangor, for RM35.54mil, which it aims to complete by the end of this year.
Aside from this, Johari explains that he is also looking to sell KUB’s oil palm plantation land, which contributes about 11% of KUB’s revenue, in the near term.
“I need to turn around the plantation business first,” he says.
Despite the softening crude palm oil (CPO) price, brownfield oil palm plantations are in demand due to limited land and the high cost and environmental issues related to greenfield expansion.
Recently, Far East Holdings Bhd agreed to pay RM182.99mil, or a price equivalent to RM32,000 per ha, for a leasehold parcel of land planted with oil palm trees owned by Harn Len Corp Bhd.
Using this benchmark pricing, KUB could make about RM280mil for its oil palm plantation area that stands at 8,866ha, located in Johor, Sabah and Sarawak.
In 2018, oil palm plantation deals saw more expensive price tags. For instance, United Plantations Bhd’s acquisition of estates in Teluk Intan, Perak, was tagged at RM414mil or RM120,336 per planted ha, which it bought from Pinehill Pacific Bhd.
Aside from the plantation asset, another prized asset in KUB is its stake in a sanitary landfill located in Bukit Tagar.
The landfill is run by concessionaire KUBBerjaya Enviro Sdn Bhd, which is a 60:40 joint venture between Berjaya Corp Bhd and KUB.
It has a capacity of about 120 million tonnes, and can operate for more than 60 years.
Johari points out that the value of KUB could be unleashed with the right management team.
“I believe with a proper revamp of KUB’s management team, and by putting in the right business model and operating it as a lean organisation, KUB can increase its value by 30% to 50%,” he says.
Moving forward, Johari targets KUB to continue focusing on its liquefied petroleum gas (LPG) business, which currently contributes 80% of group revenue.
KUB is involved in the bottling, marketing and distribution of LPG for household and industrial use, under the brand name Solar Gas.
Its current share price at around 32 sen apiece is below its net tangible asset (NTA) of 57 sen a share.
That may be likely due to the company’s poor performance.
For its first quarter ended March 31, 2019, the company posted a 93% drop in net profit to RM390,000 from RM8.25mil a year earlier.
For the full year ended Dec 31, 2018, it posted a net profit of RM1.17mil compared to RM32.95mil a year earlier. The company said this was due to the impairment of its mills in Sarawak, among others.
The company has borrowings of RM138mil and cash of RM99mil.
Another reason why KUB has not attracted investor attention is the fact that its main LPG business has not been producing any significant profit margins. “We are working to increase the profitability of the LPG business, especially with the new bottling plant in Beranang, Selangor,” Johari says.
The new bottling plant is expected to reduce KUB’s logistics cost and improve its margins.
Going forward, aside from asset disposals, Johari also hints of new acquisitions by KUB, once the company is on more stable ground.
“The amount that I paid for a 32% block in KUB at 68 sen per share was at a 72% premium over the last traded price of 39.5 sen then. Hence, it is considered to be on the high side.
“However, if you compare it with the NTA of the company, the premium is only 13%.
“I am not ruling out merger and acquisition activities in the future if there is an opportunity to bring new business to the group,” he says.