Friday 29 Mar 2024
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ChengYean_OrientalHoldings_1048.pngWHILE car ownership is now common in Malaysia, the kapchai weaving its way through Kuala Lumpur’s crawling traffic is still considered the cheapest and most efficient mode of transport.

One can thank the late Tan Sri Loh Boon Siew for having introduced such underbone motorcycles in the country in the late 1950s, after securing the distributor rights of Honda motorbikes.

With the franchise from Honda Japan, followed by the distributorship of Honda cars, Boon Siew had built a sprawling business empire spanning motor vehicles, property development, plantations, hotels and resorts, plastic products and healthcare.

Now, almost two decades after his passing in 1995, Boon Siew’s legacy has been handed over to the third generation, led by Datuk Loh Kian Chong, who is the son of Boon Siew’s eldest and only surviving son Loh Kar Bee.  

The passing of the baton was made official last week, with the family’s listed arm and flagship Oriental Holdings Bhd announcing that Kian Chong, formerly the deputy chairman, has taken over as executive chairman from his aunt, Datuk Seri Loh Cheng Yean. Cheng Yean, who is the second daughter of Boon Siew, is retiring at the age of 71, after spending almost five decades with the group.

KianChong_OrientalHoldings_1048At 39, Kian Chong certainly has his work cut out for him, so too his two other cousins — Tan Kheng Hwee, 49, and Datuk Seri Tan Hui Jing, 34 — who became executive directors of Oriental Holdings last week. Kheng Hwee is the daughter of Cheng Yean, while Hui Jing is the son of Datuk Dr Tan Chong Siang, who is married to Boon Siew’s youngest daughter Gim Ean.

 The transition in the board has piqued investor interest in the future direction of Oriental Holdings. While Boon Siew’s first son-in-law Datuk Robert Wong, 74, and third son-in-law Datuk Seri Lim Su Tong, 70, remain as joint group managing directors for now, they may retire in the next few years, considering their age.

Investors are curious if there will be a change to the perceived low-profile management style long associated with Oriental Holdings, which, despite its wealth of assets, remains very much underappreciated as a listed entity.

The group’s share price of RM6.94 last Friday gave it a market capitalisation of RM4.29 billion, which is substantially below its shareholders’ fund of RM4.74 billion — which itself could be an understatement as many of the group’s property assets have not been revalued.

Meanwhile, its 2014 annualised net profit of RM283.9 million translates into a return on equity of 6%, indicating that it has not worked its assets hard enough. It is not difficult to fathom why, as the group continues to sit on huge cash reserves — some RM2.14 billion in net cash as at Sept 30, 2014.

There could be more to Oriental Holdings’ potential than meets the eye.

It is interesting to note that since the financial year 2011, the group no longer lists all its property assets, save the 10 largest properties, in its annual report. The year before that, its property asset listing took up 15 pages of the annual report, showing land parcels acquired many years ago, especially in Penang, as well as hotel properties in Australia and so on.

Nevertheless, over the past two decades, one cannot deny that Oriental Holdings has been managed rather prudently by Cheng Yean and her two brother-in-laws, Wong and Lim, and all three deserve credit for having conserved and expanded the group’s wealth post-Boon Siew’s era. This is clearly evident in the huge cash surplus shown on its balance sheet today.

The family members have also remained united and quietly gone about doing the business, having successfully recovered from the negative impact of losing its controlling stake in the Honda motor vehicle franchise in 2000. This was by deepening its diversification into sectors such as property development and oil palm plantation in Indonesia, which is now the core profit contributor.

The move has borne fruit. For the nine months ended Sept 30, 2014, its automotive segment contributed 16.2% of pre-tax profit of RM327 million, while plantations contributed as much as 45.4%, followed by the investment holding and financial services segment and so on. As a comparison, the group’s pre-tax profit was RM205 million in 2001.

However, despite its wealth of landbank, the group’s property development division contributed only 2% of pre-tax profit in 9M2014. Nevertheless, there could be potential growth in this segment as the group undertakes a huge land reclamation project in Melaka while it continues to strengthen its property brand under BSG Property.

As with other Chinese family businesses that have progressed with the times, investors have hopes that the younger Loh would become more investor-friendly and perhaps, more forthcoming with the group’s plans and future direction. Anyhow, with the passing of baton to the third generation, the tragic incidents that had befallen the family have become very much a thing of the past.

It was said that the Loh family became media shy after the death of Boon Siew’s second son Loh Kah Kheng in 1987, under mysterious circumstances. It was a devastating blow to Boon Siew, who had been grooming Kah Kheng to take over the business for some years at that point. In fact, Kah Kheng was Oriental Holdings’ managing director at the time of his death. Then, in 1999, Kah Kheng’s son Loh Yu Jen died after falling from a condominium.

With Kah Kheng’s passing, Boon Siew’s eldest son Kar Bee was said to be uninterested in taking over the business. The mantle then fell on second daughter Cheng Yean, who became a director in 1987 and chairman in 1995, after Boon Siew’s passing.

Needless to say, long-time investors would be eager to see Oriental Holdings shed its image as a “boring” stock. It is worth noting that the biggest damper on the group’s share price has been its reluctance to deploy its cash reserves, either in the form of better dividends or more aggressive acquisitions or investments. Nevertheless, the stock did generate stronger interest in recent years, rising from RM5.50 in the beginning of 2012 to hit RM10.50 in early 2013, riding on its strong palm oil earnings.

To be fair, Oriental Holdings did bring decent returns to shareholders — 7.9% per annum on average over the past 20 years, including dividends. This was no mean feat, but again, investors are yearning for it to improve its capital management policy and unlock more value for them, now that the third generation is in the driving seat.

 

This article first appeared in The Edge Malaysia Weekly, on January 5 - 11, 2015.

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