Hap Seng on buying spree
BY LEONG HUNG YEETHE STAR
Hap Seng’s quarrying operations in Malaysia. Its quarry and building materials division contributed 7, or RM337.2mil, to the group’s revenue in FY15.
Diversified company to buy Malaysian Mosaics
DIVERSIFIED group Hap Seng Consolidated Bhd continues its acquisition streak by announcing that it will buy tile manufacturer Malaysian Mosaics Sdn Bhd (MMSB).
The proposed acquisition signals the company’s second acquisition so far this year.
In January, Hap Seng had proposed to acquire Lei Shing Hong Wood Products Ltd (LSHWP) from Lei Shing Hong Trading Ltd, a wholly-owned subsidiary of Lei Shing Hong Ltd (LSH) for US$3.21mil cash.
Then, early this week, Hap Seng proposed to buy MMSB from Gek Poh (Holdings) Sdn Bhd for RM380mil in a move to expand its building material businesses. Concurrently, it also announced the divestment of its Hap Seng Commercial Vehicle Sdn Bhd (HSCV) for RM750mil to finance its acquisition of MMSB.
So what has Hap Seng got up its sleeve? Is there a bumper dividend as a result of its divestment of HSCV?
The conglomerate is forming a leading building materials and ceramic tile group in the local, regional and overseas markets.
“The acquisition of MMSB is an integral part of Hap Seng’s vision for the building materials business of Hap Seng group consisting of operation of stone quarries and asphalt plants, manufacturing of bricks, trading of building materials and retailing and distribution of ceramic tiles.
“Combined with MMSB, these businesses will form a leading building materials and ceramic tile group in the local, regional and overseas markets,” Hap Seng says when announcing the proposed acquisition.
In terms of synergy, analysts say the MMSB business is complementary to Hap Seng building materials business.
“We believe this is a acquisition will expand and complement Hap Seng existing business,” an analyst say, adding that there’s a profit guarantee element from Gek Poh.
Tan Sri Panglima Lau Cho Kun is a 37.68% major shareholder of LSH and a 56% major shareholder and director of Gek Poh, which is the holding company of HSCB.
Under the deal, Hap Seng gets a profit guarantee from Gek Poh that MMSB’ audited consolidated profit after tax shall not be less than RM30.71mil for the financial year ending Dec 31, 2016 (FY16), not less than RM40.93mil for FY17, RM53.9mil for FY18, RM67.52mil for FY19, and RM81.97mil for FY20.
“The proposed acquisition is expected to contribute positively to the future earnings of the Hap Seng group and will be strategically well placed to complement and synergise with the group’s range of building material businesses, including the group’s Singapore listed subsidiary, namely Hafary Holdings Ltd which is a leading supplier of premium tiles, stone, mosaic, wood-flooring, quartz top and sanitary ware fittings in Singapore,” Hap Seng says.
Interestingly, MMSB used to own Hap Seng.
In 2006, MMSB divest its 53% stake in Hap Seng for RM686mil, or at RM2.20 per share to Gek Poh, its controlling shareholder.
Hap Seng’s building material business is still relatively small compared with the other businesses within the group such as property and plantation.
For FY15, Hap Seng posted a net profit of RM908.47mil on revenue of RM4.39bil.
Based on FY15 financial results, Hap Seng’s automotive business is the biggest contributor to its revenue with 26% or RM1.17bil followed by fertilisers trading division with 19%, or RM894.1mil and property with 18%, or RM815.9mil.
Its quarry and building materials division contributed 7%, or RM337.2mil to the group’s revenue in FY15. Despite being the biggest contributor to the group’s revenue, automotive division’s contribution to its operating profit was only about 3%, or RM24.9mil.
There’s no break down on contributions from its commercial vehicle business under its automotive business.
Property business is the group’s biggest contributor in terms of operating profit. The division contributed RM380.5mil, or 45% to the group’s operating profit.
Its plantation division contributed 22%, or RM123.1mil to operating profit in FY15.
Given that property development has been one the key engines of growth for the Hap Seng group, it makes good sense for the acquisition of Malaysian Mosaics considering there are opportunities for cross synergies.
As such, the earnings kicker is almost immediate post acquisition.
Analysts say shareholders are hoping for a bumper dividend payment announcement as a result of Hap Seng’s divestment of its commercial vehicle business.
They say Hap Seng may be able to spring a surprise by declaring generous dividend to shareholders.
The company announced that Hap Seng Star Sdn Bhd (HSS) had proposed to dispose 51% of the issue and paid up capital of HSCV to Lei Shing Hong Commercial Vehicles Ltd (LSHCV) for RM382.5mil cash, or RM3 per share. It has also proposed to dispose the balance of 49% of HSCV for a cash consideration of up to RM367.5mil, or RM3 per share pursuant to the put option exercise.
The put option will give the Hap Seng the right for a period of five years after completion to dispose the remaining 49% equity interest.
Hap Seng is expected to gain RM498.94mil from the proposed disposals. The group is expected to gain RM254.46mil from the disposal of 51% equity interest in HSCV while the balance 49% to gain RM244.48mil.
All in all, the divestment would raise some RM750mil for Hap Seng and the acquisition of MMSB is RM380mil.
Hap Seng says the divestment of the 51% stake in HSCV would be use to finance its acquisition of MMSB while proceeds from the exercise of put option be utilised as working capital.
According to analysts, Hap Seng has been very generous with shareholders by giving back to shareholders through dividend.
In FY15, Hap Seng declared a 30 sen dividend per share amounting to RM645.93mil compared with the 25 sen per share totalling RM523.58mil declared in FY14.
At the current price of RM7.70, Hap Seng shares provide a 3.9% dividend yield. Year-to-date, Hap Seng shares have gained RM1.22, or 18.83%.
