FOR long-term investors, a rise in the share price is good news, but the reward mainly lies in the dividend payouts. What’s even better is if the company awards bonus issues of shares or warrants, and distributes treasury shares bought at a low price.
Little-known PWF Consolidated Bhd has done all of the above — something that even blue chips might not do.
Over the past four years, the Penang-based poultry farm has been paying cash dividends regularly, distributing share dividends and undertaking bonus issue of shares and warrants. A quick check on Bloomberg shows that PWF has given its shareholders a stunning return of 330% since 2013.
If an investor had bought 10,000 PWF shares in January 2014, valued at RM7,200, his investment would be worth about RM22,700 today. That 210% increase in value, or RM15,500, takes into account capital appreciation of RM10,560, cash dividend of RM2,520, share dividend of RM720 and free warrants of RM1,700.
“The best thing about this company is that it knows how to create, add and maximise shareholder value. It believes in the corporate philosophy of sharing the fruits with its shareholders. That, to me, is very important,” says a shareholder, who only wants to be known as Lim.
For the nine months ended Sept 30, 2016 (9MFY2016), PWF declared a cumulative dividend per share of 3.5 sen, in addition to distributing share dividend on the basis of one treasury share for every 25 existing shares.
A back-of-the-envelope calculation shows that PWF shareholders would receive 40 treasury shares for every 1,000 shares held. At the current market price of 74 sen, 40 treasury shares would be worth RM29.60.
In other words, PWF shareholders are enjoying a dividend yield of 8.8%, based on the cash and share dividends amounting to 6.5 sen.
PWF also undertook a bonus issue of warrants, on the basis of three warrants for every 10 shares, after it completed a share split exercise in the middle of last year, with one existing share of RM1 split into two shares of 50 sen each.
“Looking at the way the company is doing things, I think we can continue to expect good dividend payouts,” says Lim.
Between FY2013 and FY2016, PWF distributed 50% to 70% of its net profits as cash dividend (see table).
PWF saw its share price gain 35% to 74 sen last Thursday, up from 54.8 sen on Jan 26 last year. On Dec 1 last year, it was trading at 75.5 sen.
Currently, PWF is trading at a trailing 12-month price-earnings ratio of 12.4 times. In comparison, CAB Cakaran Corp Bhd is trading at 10 times PER, and Teo Seng Capital Bhd and LTKM Bhd are both at 13 times.
Low-profile PWF has not been on the radar screen of most investors, especially fund managers, as it is a small-cap counter with a market capitalisation of only RM117.1 million. In fact, it is a penny stock as it is priced below RM1.
Furthermore, the shares are rather illiquid as the company is tightly controlled by its major shareholders, which might have discouraged investors. The stock is not covered by any research analyst at present.
“The only concern is PWF’s share liquidity. The company should try to improve on this. It would be good if one million shares were traded every day,” says Lim.
The co-founders of PWF are Datuk Siah Gim Eng, the managing director, and his wife Datin Law Hooi Lean, his deputy. The husband-and-wife team collectively owns a 50% stake.
Siah, 58, was appointed to the board in May 2001. He has been the driving force in implementing the group’s corporate strategy. With more than 30 years’ experience in the feed milling and poultry farming industry, Siah has steered PWF into becoming one of the country’s leading feed mill and farming groups.
Interestingly, Tropical TC Boy Sdn Bhd, through Tropical Consolidated Corp Sdn Bhd, owns a 7.78% stake in PWF. TC Boy, founded by Datuk Seri Tan Boon Pin, is a Penang-based canned food manufacturer, with a range of products that include tuna and salmon to sardines, baked beans and sea coconut.
Perbadanan Pembangunan Pertanian Negeri Perak, Bank Pertanian Malaysia Bhd, Tohtonku Sdn Bhd and Follow Me Industries Sdn Bhd, are also listed among the top 30 PWF shareholders. Follow Me Industries is a manufacturer of cosmetics, personal care and toiletry products that are exclusively distributed by Tohtonku.
It is worth noting that PWF’s earnings performance has been rather lumpy over the years. For the financial year ended Dec 31, 2014 (FY2014), net profit more than doubled to RM11.7 million, before declining sharply to RM6 million in FY2015.
In its 2015 annual report, PWF chairman Datuk Zuraidi Rahim said the group’s result was affected by the fall in the prices of broilers and eggs, and the weaker ringgit, which resulted in higher import cost of raw materials.
“Chicken meat and eggs have been the most consumed staples in the country for decades. Inelasticity to changes in price means demand will continue to be stable, notwithstanding possible temporary mismatch between supply and demand that could impact the market price, while population growth is expected to fuel growth in demand,” he said.
“Nevertheless, the company expects challenges from the rising cost of living and an uncertain economic environment,” Zuraidi added.
For 9MFY2016, PWF’s net profit grew 44% to RM11.1 million from a year ago. The higher profit was attributed to higher sales volume of broilers and improved profit margin due to the higher selling price of broilers and improved performance of layer poultry farming.
On its outlook, PWF says it is confident its financial results for FY2016 will be “favourable” despite the “challenging economic environment”. On an annualised basis, the company should be able to close the year with about RM14.8 million.
In 2015, PWF had announced plans to construct a new breeder farm, close-type broiler house and layer house and convert an existing open-type broiler house to a close-type. While there have not been further updates on the project, the management had said it is confident the expansion plan will contribute to future revenue and earnings growth.
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