Stocks with likelihood of Corporate Exercise: Tekala Corporation

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Tekala Corporation Berhad

Tekala Corporation is a Sabah-based plywood manufacturer that has a likelihood of corporate activities due to a strong cash-rich balance sheet, and a core business that has been relatively unexciting.

Tekala operates a plymill in Tawau, Sabah, occupying an area of 33 acres. It has five plymill lines with total production capacity of 7,500 cubic metre of plywood per month. The company’s products are mainly used for plywood flooring in Japan, which accounts for 90% of its export market.

Ironically, Tekala’s main attraction is not its underlying timber business, but an earlier diversification into – and subsequent exit from – an oil and gas vessel chartering venture that has turned it cash-rich.

Tekala disposed a vessel for RM95 million in August 2013, which resulted in a gain of RM10.9 million. After paying off its debts, the company now has a very strong balance sheet, with net cash of RM46 million as at 30 June 2014, or 33 sen per share.

It is noteworthy that its cash is just slightly below its market capitalisation of RM46.9 million and accounts for 98.5% of the current share price of 33.5 sen. The stock is trading at 0.5 times its book value of 63.9 sen.

Admittedly, Tekala’s timber operations have not been exciting, with losses in FY March2011 to FY2013, partly due to Japan’s long running economic downturn. However, the Japanese economy is starting to recover and this has boosted housing starts. In FY14, the company posted a net profit of RM3.7 million on revenue of RM83.2 million, boosted by the vessel disposal.  

Potential re-rating catalysts for the stock could include a dividend payout, or corporate activities focusing on its cash reserves or efforts to improve its lacklustre earnings.

This article first appeared in The Edge Financial Daily, on October 21, 2014.