The share price surged 40 cents in 2 days’ time after this article appeared in the edge on 6/1/07
8 Jan 2007: Corporate: Revaluation gains for Keck Seng?
By Risen Jayaseelan
Plantation and property concern Keck Seng (M) Bhd stands to enjoy a big boost to profits if it marks to market the value of its assets. As at its third quarter ended Sept 31, 2006, the stated market value of Keck Seng’s quoted securities investments was RM492.9 million. This was up by more than RM100 million from the market value of these stocks as at Dec 31, 2005. Keck Seng’s 2005 annual report reveals that most of these investments were in stocks listed overseas. The book value or cost of these shares is RM13.8 million for Malaysian shares and RM137.3 million for shares outside Malaysia. Industry sources say the value of these investments had risen even more in 4QFY2006, due to the good performance of the markets in Singapore and Hong Kong, in which most of Keng Seng’s equity investments are believed to be. “Keck Seng is likely to become a ‘revaluation asset’ play among investors,” says an industry source. Another indicates that Keck Seng is benefiting from owning shares in PPB Oil Palms Bhd although this is yet to be confirmed. Keng Seng’s officials at the head office in Singapore have yet to reply to queries from The Edge. PPB Oil Palms shares have risen by about 30% since the announcement of its merger with Singapore’s Wilmar International Ltd. Still, there is a link between the management of Keck Seng and the Kuok group, indicating that Keck Seng is likely to be holding shares in PPB Oil Palms and/or other Kuok-related stocks. Ho Kian Guan, Keck Seng’s executive chairman, and Datuk Ho Kian Hock, its managing director, are both directors of Pelangi Bhd and Singapore-based Shangri-La Hotels Ltd, both companies linked to the Kuok group. Meanwhile, what could influence Keck Seng to mark to market its assets is Financial Reporting Standard (FRS) 139. This standard requires companies to mark to market their equity investments and the surplus or deficit over cost to be stated as earnings or losses in the profit and loss (P&L) accounts. It should be noted though that the Malaysian Accounting Standards Board (MASB) has yet to set a deadline for FRS 139 to be implemented. Still, it is in Keck Seng’s interest to begin implementing FRS 139 as it would make the company’s asset base and profitability rise. One investment analyst notes that the rise in the value of shares owned by Keck Seng has followed the performance of Singapore’s Straits Times Index (STI) closely. For example, in June 2006, Keck Seng’s equity investments had a market value of RM437 million and had grown by 13% to RM492 million by September that year. In the same period, the STI rose about 11%. Hence, the analyst projects that Keck Seng’s equity investments would have risen by at least another 10% in 4QFY2006, considering that the STI had gone up by 15% in that quarter. He says the market value of Keck Seng’s equity investments would have risen to around RM541 million. This translates to a surplus of RM391 million over the cost of those shares, which in turn translates to an increase of RM1.60 in Keck Seng’s net tangible assets (NTA). This would bring its NTA to around RM5.91, about 70% higher than its current share price of RM3.50. Another boon for Keck Seng, if it marked to market its assets, is that it has a huge landbank that has also increased in value. It owns oil palm estates and other land that it has been developing. The analyst estimates that if the land were to be revalued at current market prices, it should be carrying a price of at least RM392 million above its book value of RM254 million. This is based on an estimated average market value of RM60,000 per acre for the 10,760 acres of land that Keck Seng owns in Johor. Its book value for the landbank is RM254 million. Adding the excess RM392 million from the land revaluation and RM391 million surplus from its equity investments, Keck Seng could be sitting on a potential paper gain of some RM783 million, according to this analyst’s estimates. This would give Keck Seng an NTA of RM7.53, more than double its current share price. But another analyst cautions that any revaluation of assets by Keck Seng will remain just that. “Remember that this is merely an accounting treatment of the assets. What is important is looking at the cash flow of the company. Will Keck Seng do anything to liquidate those assets?” he asks.
Having “actual” net asset value of more than RM 13 but traded at the price of RM 3.20 for the past few weeks. Published NAV of about RM 4.50 was made based of the valuation of land bank done in 1980. The land has appreciated about 30 times but if you refer to the company’s annual report, the valuation was made in year 1980 and so, it does not reflect the true value of it’s land bank. Further more, the land bank is located within the vicinity of golden triangle of South Johor Economic Region. Will also benefit from the recent rally in Crude Palm Oil price as oil palm plantation is one of its core business.
Article 1 abstracted from newspaper:
The Singaporean-owned company is involved in plantation, property development and hotel management. A head of research at a local brokerage said the stock was considered attractive due to its “hidden assets and strategic landbank.” “The landbank is located strategically in Ulu Tiram, Skudai and Pasir Gudang,” he said. While Ulu Tiram, Skudai and Johor Baru were seen as making up the “golden triangle” of Johor, Pasir Gudang was the port hub for the state, he said, noting that the value of Keck Seng’s landbank had grown substantially over the last 26 years. In 1980, the landbank was estimated to worth about RM7,000 to RM8,000 per acre but was now worth about RM250,000 an acre.
Article 2 abstracted from newspaper:
The company with the largest surplus in its share portfolio could be Keck Seng (M) Bhd. This is an “old money” company engaged in oil palm cultivation, milling and refining, property development and hotel ownership.
It had loads of cash, to the tune of RM320mil in fact. In addition, it had RM150mil invested in shares, mainly overseas. This investment portfolio had a surplus of RM240mil over its book value at the end of last year. The surplus would probably be even higher now because almost 80% of the portfolio was invested overseas, and foreign stock markets are generally bullish this year.
Under FRS 139, Keck Seng would have stated a bumper profit, depending on whether it complied with the FRS early in first quarter ended March 31, or under mandatory compliance in its fourth quarter. This is now in question following MASB’s deferment.
Keck Seng is a very asset-rich company. It owns three hotels overseas – International Plaza in Toronto, Four Points Hotel in Quebec and Waikiki Hotel in Honolulu. Back home, it owns 8,300 acres of oil palm estates in Johor. These acreages, carried in its books as estate land at RM5,300 an acre, are more akin to real estate.
The estates are located within 30km from Johor Baru, and the urban sprawl has reached this location. As it is mainly medium-cost houses that are being built there, a conservative value would be RM60,000 an acre. The estates could be worth about RM450mil more than its book value.
In terms of assets, Keck Seng’s shares could carry a value of about RM7.00 compared with their price of RM3.26. The Ho family, controlling shareholders, know the value of Keck Seng more than anyone else. Perhaps this is the reason they increased their direct and indirect interests in the company by over 17 million shares in the six months up to March.
