LYSAGHT GALVANIZED STEEL BHD last week surprised shareholders by declaring a special dividend of 50 sen per share, but still failed to address its low free float and illiquid trade.

The low-profile traffic pole maker has been making headlines as members of the founding family, who are major shareholders, fight for control of the company.

Last Tuesday, despite reporting lower revenue and net profit for its third quarter ended Sept 30, 2014 (3QFY14), Lysaght said it will pay the special interim single-tier dividend on Dec 24. The counter will trade ex-dividend on Dec 8.

The company’s net profit declined 12% to RM3.44 million in 3QFY14, while revenue decreased 3% to RM18.29 million. In 9MFY14, Lysaght’s net profit dropped 32.5% to RM7.96 million, while revenue also fell 21.5% to RM47.77 million.

Interestingly, Lysaght said the management is studying ways to face stiff price competition as it expects the market to remain “very competitive”. This raises questions over the company’s rationale for paying high dividends.

It is worth noting that under the stewardship of managing director Liew Hoi Foo, who is the son-in-law of the late Lysaght founder Chew Kar Heing, the group’s shareholders’ funds have grown from RM53 million in 2004 to RM114.2 million in 2013. Cash reserves also increased from RM2.4 million to RM39.3 million. The group has zero borrowings.

However, the special dividend of 50 sen apiece — the highest payout since Lysaght was listed on Bursa Malaysia in 1994 — is still a big surprise to many, considering its earnings per share (EPS) of merely 19.14 sen in 9MFY14.

The company has been paying out dividends consistently, albeit conservatively, as its dividend per share (DPS) was not more than 5 sen from 1998 to 2008. In the subsequent years, Lysaght started to pay DPS of 10 sen from 2009 to 2011, before increasing the payout to 12 sen in 2012 and 2013. The DPS of 12 sen works out to 42% and 32% of Lysaght’s net profit for 2012 and 2013 respectively.

The special dividend of 50 sen appears to be “compensation” for the Lysaght shareholders who suffered losses from the aborted share split and bonus issue exercises.

To recap, Lysaght’s board had in May this year proposed a share split, bonus issue and free warrants, only to abort the plan in October due to objections from Lysaght Malaysia Sdn Bhd (LMSB), its controlling shareholder with a 55.26% stake.

It is understood that Liew, who is the only executive member on Lysaght’s board, wanted the proposals to go through but LMSB, which is controlled by Liew’s sister-in-law Annie Chew Meu Jong, was against it.

The dispute between Liew and Meu Jong surfaced just a few months after the passing of Lysaght’s founder in February this year.

In an exclusive interview with The Edge in October, Meu Jong said Chew Bros (M) Sdn Bhd, the single largest shareholder of LMSB with a 40% stake, had decided that the proposed exercises by Lysaght were “not good” for LMSB and Chew Bros, but she declined to explain why.

The Edge also reported that Singapore-listed United Engineers Ltd (UE), which has an 11.63% stake in LMSB, could be key to settling the tussle between Liew and Meu Jong.

Common sense dictates that it would be unfavourable to Liew if Meu Jong or Chew Bros got hold of the stake.

If that happens, Meu Jong would control 51.63% of LMSB, up from the 40% now. By then, even if Liew acquired the stake or had the support of all the other shareholders of LMSB, he would not have enough votes to get past Meu Jong.

Meu Jong told The Edge that UE’s stake is up for sale but declined to say whether Chew Bros is eyeing it.

Lysaght planned to split its shares from one share of RM1 to two shares of 50 sen. Subsequently, one bonus share of 50 sen each will be credited to shareholder for every two subdivided shares held. In other words, a shareholder will be rewarded with 50 sen apiece for every existing share held.

As the corporate exercise has been called off, the special dividend of 50 sen seems to be a gesture by Lysaght’s board to shareholders.

However, it should be noted that the special dividend will not help to address the low free float situation of Lysaght, which is tightly held by the Liew and Chew families.

A day after it made the announcement on the special dividend, Lysaght board said the company does not comply with the public shareholding spread requirement, which stood at 24.08% as at Nov 25.

The Liew and Chew families collectively hold an indirect stake of 73.24% stake in Lysaght currently.

LMSB, controlled by the Chew family, owns the lion’s share of 55.26% in Lysaght. Meanwhile, Ingli Sdn Bhd, a private vehicle owned by the Liew family, has a 15.46% stake.

A simple calculation shows that Liew will bag RM3.21 million from the special dividend, while another RM11.49 million will be credited to LMSB.

As at Dec 31, 2013, Lysaght’s public shareholding spread was 25.37%.

The proposed corporate exercise involving a share split, bonus issue and free warrants, if it had been implemented, would have enhanced the trading liquidity of the company’s shares, hence benefiting all shareholders.

As the proposals have been scrapped, and Lysaght’s board intends to maintain the listing status of the company, it will explore various options to rectify the situation. It has said it will apply to the regulator for an extension of six months from Nov 26, 2014, to May 25, 2015.

The lower public shareholding spread of 24.08%, compared with 25.37% earlier, means that someone from the Liew or Chew family had bought the 1.29% stake on the open market. However, the buyer is not known at press time.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.

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