AS the saying goes, cash is king. In times of economic and market turmoil, a hefty cash cushion can provide security and financial flexibility when business slows or markets suffer an unexpected shock. And in good times, cash can fund investments, expansions or acquisitions.
Public-listed companies that have a lot of cash and little debt can be targets for dividend-hunting investors or those looking for a nice growth story. However, holding a lot of cash is no guarantee of business success. What matters is how well a company puts that money to work for its shareholders.
A look at stocks listed on Bursa Malaysia shows that 412 companies are in a net cash position, with 61 of them largely considered cash hoarders as their net cash made up at least or more than half of their market capitalisation.
The Edge has compiled a list of 20 cash-rich companies, and the table has been sorted according to their cash-to-market capitalisation ratios, which essentially show the liquidity and financial stability of a company.
We excluded China-based companies because much has been written about how these red-chip firms have so much cash in hand but still call for rights issues to raise funds.
We also avoided special purpose acquisition companies (SPACs) as it is understandable that they have large cash piles for potential future asset acquisitions.
If a company has a high ratio, it is considered financially stable. But a very high ratio could mean that a company is not investing enough or that it has not been paying decent dividends to its shareholders. This could raise questions as to whether the company’s management is doing a good job.
For an easier read, we have grouped the 20 cash-rich stocks into four categories.
1) Dividend play
Last week, gaming company Genting Malaysia Bhd surprised the market by declaring a special single-tier dividend of 7.3 sen per share for the financial year ended Dec 31, 2016. Genting Bhd, which owns a 49.06% stake in Genting Malaysia, also declared a special dividend of 6.5 sen per share.
This has heightened expectations of other cash-rich companies following suit.
A check by The Edge shows that companies such as Golden Land Bhd, Sapura Resources Bhd and Kim Loong Resources Bhd have in the past year declared bumper dividends, which translated into a trailing 12-month (TTM) dividend yield of 21%, 14% and 5% respectively. LCTH Corp Bhd also provided shareholders a TTM dividend yield of 7%, while Lysaght Galvanized Steel Bhd doled out 4%.
It is noteworthy that Sandakan-based oil palm planter Golden Land has a high cash-to-market capitalisation ratio of 0.77 times, while Johor-based plantation firm Kim Loong Resources has a relatively lower ratio of 0.22 times. This shows that a company’s board of directors and management play a key role in deciding whether to pay dividends generously.
Some companies may have a large amount of cash and assets, but they could be stingy and refuse to share the money with the minority shareholders.
2) Charting new business directions
Puncak Niaga Holdings Bhd, Tecnic Group Bhd, Hwang Capital (M) Bhd, KomarkCorp Bhd and JcbNext Bhd have one thing in common — they have sold off their core businesses and are now on the lookout for new businesses.
For instance, following the water restructuring in Selangor, Puncak Niaga is in the midst of purchasing the entire stake in TRIplc Bhd for RM210 million cash. TRIplc is involved in construction and property development, and Puncak Niaga sees the proposed acquisition as an opportunity to expand its construction segment.
It remains to be seen how soon the other companies will chart their new business directions.
3) Room for growth or value trap?
It appears that the shareholders of Sanichi Technology Bhd, Eksons Corp Bhd, Kluang Rubber Co (M) Bhd, Sungei Bagan Rubber Co (M) Bhd and Keck Seng (M) Bhd are stuck in a classic value trap, where the companies have plenty of cash but are not paying good dividends to their shareholders.
Sanichi had stopped distributing dividends since 2007, and Eksons, from 2013. Kluang Rubber, Sungei Bagan Rubber and Keck Seng did pay a minimal amount of dividends but their TTM dividend yield was less than 2%.
According to Kluang Rubber’s 2016 annual report, the company is continuing its upstream expansion in Kelantan while consistently looking out for value accretive opportunities in the sector.
As for Sanichi, the precision plastic injection moulding parts manufacturer, which ventured into the property sector in 2014, is currently embarking on the development of its maiden property project, Marina Point, in Klebang, Melaka.
It would be interesting to see how these companies’ expansion and diversification plans translate into dollar and cents in the coming years.
4) Robert Tan-controlled companies
Low-profile small-cap king Tan Sri Robert Tan Hua Choon owns substantial stakes in cash-rich Marco Holdings Bhd, FCW Holdings Bhd, Jasa Kita Bhd and GPA Holdings Bhd, which have cash-to-market capitalisation ratios of between 0.3 times and 0.8 times.
However, corporate observers who are familiar with the tycoon’s companies point out that the media-shy businessman is rather conservative when it comes to paying dividends as he is always on the lookout for expansions and new investments.
It is worth noting that Tan had exited Malaysia Aica Bhd (Maica) in 2014 by selling his entire stake to Datuk Ter Leong Yap for RM33.39 million, paving the way for the wooden product manufacturer to become a developer. It is now known as Sunsuria Bhd. If Maica is taken as a guidance, Tan could be expected to unlock the value of other listed firms controlled by him.
In a nutshell, cash-rich companies are safe-haven stocks. But at the end of the day, cash provides only a buffer — it is not a catalyst for stocks. If you do not utilise the money, the cash will have little impact.
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