Frankly Speaking: Hope for value creation

This article first appeared in The Edge Malaysia Weekly, on September 13, 2021 - September 19, 2021.
Frankly Speaking: Hope for value creation
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Soon after Kuala Lumpur Kepong Bhd completed the acquisition of a 56.2% stake in IJM Plantations Bhd from IJM Corp Bhd, two low-profile plantation counters — Kluang Rubber Co (Malaya) Bhd and Sungei Bagan Rubber Co (Malaya) — saw strong buying interest last week. They rallied by as much as 21.8% and 37.8% respectively, to their highest levels in more than three years.

Their sister company, Kuchai Development Bhd, also gained 27.4% during the week.

These three companies are controlled by Singaporean businessman Lee Thor Seng via The Nyalas Rubber Estates Ltd, but their shares have not seen much interest on the market over the years.

In May this year, Sungei Bagan announced an asset swap deal that would effectively see The Nyalas Rubber Estates having greater control over Kuchai Development, which has a stake in Great Eastern Holdings Ltd —its prized asset.

This would also allow Sungei Bagan to simplify its ownership structure. Note that its legacy cross-shareholdings with Kuchai Development have been in place for more than 20 years. Currently, Sungei Bagan is 32.21%- and 26.51%-owned by Kluang Rubber and Kuchai Development respectively.

Under the proposal, Sungei Bagan is to give up its 9.44% stake in Kuchai Development to The Nyalas Rubber Estates.

The period for fulfilment or waiver of all the conditions as set out in the agreement has been extended for three months to Dec 7, 2021.

Are the recent share price gains a sign that more corporate exercises could be on the cards for these three companies?

Perhaps they need to put in more effort to create value for their shareholders — be it via mergers and acquisitions or the disposal of non-core assets — in view of the prevailing elevated crude palm oil prices. This is especially when they have healthy balance sheets, sitting on cash piles with almost no debt.

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