This article first appeared in The Edge Malaysia Weekly on October 2, 2017 - October 8, 2017

ACE Market-listed SCH Group Bhd is a little-known quarry machinery and equipment supplier that has been off the radar screen of investors since its listing in February 2014.

This is not surprising, given that SCH’s revenue almost halved from RM65.4 million in its financial year ended Aug 31, 2014 (FY2014) to RM37 million in FY2016. The group’s earnings also dropped significantly, from RM7.2 million in FY2014 to a mere RM1.6 million in FY2016, while its net margin fell from 11% to 4.4%.

The weaker financial performance was attributed mainly to a challenging operating environment due to volatile crude oil prices, an economic slowdown and SCH’s customers adopting a precautionary stance.

For the nine months ended May 31, 2017 (9MFY2017), SCH posted a net profit of RM1.1 million on revenue of RM31.8 million.

A lack of upside catalysts coupled with lacklustre financial results have seen SCH’s shares hovering between 16 sen and 29 sen since its initial public offering (IPO) at 23 sen apiece.

However, when low-profile businessman Tan Sri Richard Koh Kin Lip and his business partner Liew Fook Meng surfaced as substantial shareholders in SCH in March this year, the stock finally emerged from under the radar screen.

It hit a 52-week high of 27 sen on April 6, gaining as much as 64% since March 1. At its close of 20 sen last Thursday, giving the company a market capitalisation of RM82.4 million, the stock had risen 11% year to date.

To recap, Koh and Liew became substantial shareholders of SCH after their private vehicle, Thianjing Holdings Sdn Bhd, acquired 43.16 million shares or a 10.47% direct stake in the company on March 2.

Thianjing Holdings mopped up another 25 million SCH shares on March 30, raising its total shareholding in the company to 16.5%. The transacted price was not disclosed.

Who is Richard Koh?

Koh, 69, is said to be one of the richest and most powerful businessmen in Sandakan, Sabah. After completing his studies in the UK, he returned to Malaysia in 1977 and joined Standard Chartered Bank in Sandakan as a trainee assistant.

Ten years later, Koh founded Rickoh Holdings Sdn Bhd, the flagship of his family business, which is involved in securities investment, oil palm plantations, information technology, property development and investment, hotels and quarry operations.

Today, Koh is a substantial shareholder of public transport service provider Perak Transit Bhd — with 5.5% equity interest — and holds minority stakes in leisure and hospitality service provider Only World Group Holdings Bhd and homegrown confectioner Cocoaland Holdings Bhd, in which he is a director as well.

Koh is also a director of IOI Properties Group Bhd, NPC Resources Bhd and Daya Materials Bhd, and corporate development director of Red Sena Bhd.

His partner Liew is executive director and one of the founding brothers of Cocoaland. The 70-year-old has more than 30 years of experience in the manufacturing and marketing of confectionery products. He still oversees product development through his active involvement in introducing new ideas and flavouring processes.

With the emergence of Koh, and to a certain extent, Liew, market expectations are high that the duo can elevate SCH like they elevated Cocoaland.

According to a person familiar with Koh, he has a strong network and is well connected, and is capable of bringing new strategic investors into SCH.

“Koh may keep a low profile but he has been very active recently, and he has some followers. He got to know Liew when he joined Cocoaland, and now, he is enlisting Liew into SCH,” the source tells The Edge.

It is worth noting that after Koh was appointed to the board of Cocoaland in 2010, the group’s net profit jumped from RM10 million in its financial year ended Dec 31, 2010 (FY2010), to RM44 million in FY2016.

While it is not fair to suggest that Cocoaland’s better performance was due entirely to Koh’s presence, it is worth noting that the snack and candy maker’s market capitalisation had grown from RM157 million as at Dec 31, 2009, to RM629 million as at last Thursday, when the stock closed at RM2.75.

“Cocoaland is a good example of the duo’s success, and now they want to replicate that at SCH,” says the source.

Achieving synergy

Founded in 1983 and based in Balakong, Selangor, SCH is a specialist supplier of quarry industrial products, machinery and equipment. Its main competitors are Sunway Marketing Sdn Bhd and Swedish mining equipment makers Sandvik AB and Atlas Copco AB.

In the last 25 years,  SCH has been distributing and supplying products such as jaw crushers, cone crushers, hydraulic crawler drills, rock tools, conveyor belts and impact springs to the quarry industry. The equipment is imported mainly from Japan, South Korea, China and India.

With a local market share of about 18%, SCH distributes its products to more than 500 domestic customers (mainly quarry operators) as well as clients in Singapore, Indonesia, Thailand, Myanmar and Cambodia.

Interestingly, Koh is said to be one of SCH’s clients as he owns some quarries and river sand concessions in Sabah.

“Koh sees potential in SCH and he believes there is synergy to be achieved between the company and his quarries,” the source says, adding that Koh also sees infrastructure projects in the country requiring a lot of sand, stones and aggregate, and thus expects overall demand for quarry industrial products to improve next year.

“When the construction industry is booming, quarry operators need to expand and will therefore require more equipment,” the source says.

With the anticipated rollout of the Kuala Lumpur-Singapore high-speed rail and East Coast Rail Link as well as the construction of Tun Razak Exchange and Bandar Malaysia in the next two years, SCH expects high demand for quarry machinery and equipment.

“Chinese companies may use their own expertise when they undertake construction work in Malaysia but it is not a good idea for them to import sand and stone because of the logistics cost,” the source says.

Considering that the quarries in the country are owned mostly by Malaysians, many of whom are SCH’s clients, the company’s prospects are bright, the source adds.

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