TEK SENG HOLDINGS BHD is involved mainly in two business sectors — plastics and solar energy. In the plastics business, Tek Seng manufactures and trades polyvinyl chloride-related products and polypropylene non-woven products. It diversified into the solar energy trade in 2011 and now manufactures and sells solar cell panels and modules.

After many years in business, Tek Seng (fundamental: 0.60; valuation: 1.10) finally announced a dividend policy last November, committing to a dividend payout ratio of at least 30% of the group’s net profit, starting in the financial year ending Dec 31, 2015.

Then, Tek Seng rewarded shareholders by issuing 120 million warrants on the basis of one free warrant for every two existing ordinary shares on Jan 29, 2015. A full conversion of the warrants will enlarge Tek Seng’s share base from 240 million to 360 million.

The warrant, Tek Seng-WA, was trading at 24.5 sen apiece last Tuesday and offers some discount to those looking at the mother share. The American-style call warrant can be exercised anytime up to its expiry on Jan 29, 2020, at 25 sen. Based on its last price, the warrant is trading at a 1.98% discount to the mother share, which closed at 50.5 sen that day, giving it a market capitalisation of RM125.55 million.

It is worth noting that the plastics segment offers Tek Seng a reliable revenue stream, having recorded single-digit growth in the past three years. However, it has been reported that the company has no plans to expand the business aggressively. Instead, the solar energy segment is expected to power Tek Seng’s growth in the future.

Last September, the company announced that Taiwan-based solar cell producer Solartech Energy Corp will invest RM100 million in its 68.1%-owned subsidiary, TS Solartech Sdn Bhd. The investment will be used to add new production lines in the first and third quarters of 2015. This would triple Tek Seng’s production capacity to 210mw per annum.

“This will turn around the solar energy segment from a net loss of RM500,000 in 9M14 to a net profit of RM5 million in FY2015,” says Kenanga Research in a Jan 15 un-rated report.

“We are projecting the solar energy segment to contribute 51.2% to the group’s revenue in FY2015. Tek Seng could spin off its solar energy segment so it can focus on its solar cell business and unlock value for shareholders,” it adds.

Kenanga Research says the stock was already fairly valued and should be trading at around 83 sen apiece.

This article first appeared in Capital, The Edge Malaysia Weekly, on June 22 - 28, 2015.

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