Changing face of Oriental Holdings

Hotel asset: Among Oriental Holdings overseas assets ... the Bayview on the Park in Melbourne.

Penang-based group sells automotive assembly plant, marking a switch in business strategy

THE wheels are turning in Penang-based Oriental Holdings Bhd, which is known for its prowess in the motorcycle and car industry.

The emphasis of the sprawling business being managed by the third generation of the ground founded by the late Tan Sri Loh Boon Siew, aka “Mr Honda”, is on businesses such as property, plantations, investments and healthcare. The automotive sector, although a major money-spinner for the group, has not seen any major investments in the last 15 years.

For the uninitiated, the iconic Boon Siew was the richest man in Penang during his lifetime.

His inspiring story began when as an illiterate, he arrived in Malaya in 1929 to seek better fortunes.

Even at a young age, he already showed signs of foresight when he chose to be a lower-paid apprentice mechanic instead of a sedan chair puller that demanded no skill. At night, he would wash filthy buses at the riverside of Prangin Road.

The entrepreneurial Boon Siew saved enough money to buy second-hand buses at 18, and from there, he soon became the owner of Penang’s Yellow Bus Company.

The Honda EX5: One of the mainstays in the motorbike stable of Boon Siew Motors for the last two decades.

Boon Siew sealed his position as Mr Honda after he secured the distributor rights of Honda motorbikes and cars from Japan.

So rich was Boon Siew that by the early 1990s, he had accumulated vast stretches of land in Penang and close to 50% of Langkawi.

There was once in the nineties when his eldest daughter Ean went for a boat ride in Penang and upon seeing a parcel of land in the Mukah Head part of the island, turned to her staff and remarked what a pretty island it was, and whether it was up for sale.

Her staff replied: “Madam, you already own that piece of the island.”

Such was the wealth of Boon Siew that he owned nearly everything of importance during his time. His empire extended to the business of plastics making, the assembly of motor vehicles, motor parts manufacturing, plantation, hotel and resorts, as well as property development both locally and overseas.

Boon Siew died in his home in February 1995.

New changes

The grooming of Boon Siew’s third generation has been taking place for some time.

Firstly, Boon Siew’s children, or the second generation, are reaching their twilight years. Boon Siew had six children from two marriages – four girls and two boys.

So, some two decades after Boon Siew’s passing, his legacy is being handed over to the third generation, led by Datuk Loh Kian Chong, who is the son of Boon Siew’s eldest and only surviving son, Loh Kar Bee.

This appointment was made in early 2015 when Oriental Holdings announced that Kian Chong, formerly the deputy chairman, had taken over as executive chairman from his aunt, Datuk Seri Loh Cheng Yean. She is Boon Siew’s daughter and retired at the age of 71 in 2015.

Nonetheless, Kian Chong, 40, has been with the Boon Siew group of companies since 2000. He was appointed to the board of Oriental Holdings in 2009. Kian Chong’s deemed interest in Oriental Holdings stands at 57.36% currently, which is held through the family’s privately owned company Boon Siew Sdn Bhd.

At the helm: Kian Chong currently helms Boon Siew’s business empire.

Kian Chong’s two other cousins – Tan Kheng Hwee, 50, and Datuk Seri Tan Hui Jing, 35 – have been appointed executive directors of Oriental Holdings.

Kheng Hwee is the daughter of Cheng Yean, while Hui Jing is the son of Datuk Dr Tan Chong Siang, who is married to Boon Siew’s youngest daughter Gim Ean.

While Boon Siew’s first son-in-law Datuk Robert Wong, 75, and third son-in-law Datuk Seri Lim Su Tong, 71, remain as joint group managing directors for now, it is likely that they will retire soon.

Wong is the husband of Boon Siew’s eldest daughter Ean. He is the key person in growing the Honda business to what it is today.

Strategy switch

The most obvious sign that Boon Siew’s third generation has made the decision to diminish its interest in the automotive business was when it announced the disposal of Oriental Holdings’ car assembly and automotive parts manufacturing unit, Oriental Assemblers Sdn Bhd, to Berjaya Assets Bhd for RM32.5mil last June.

Oriental Holdings announced that its disposal of Oriental Assemblers was aligned to the group’s core strategy of streamlining its businesses and exiting the automotive assembly operations.

Prior to this, though, Oriental Holdings had stopped investing in the automotive business since it lost the sole distributorship of the Honda brand. Recall that Oriental Holdings’ Kah Motor Sdn Bhd was the sole distributor of Honda cars until July 2001 when the franchise was taken over by DRB Oriental Honda Sdn Bhd, with Kah being made a dealer.

“Boon Siew’s third generation has taken on a more prominent role in the business currently. Nothing has changed really. It still appears to be very conservative, and yes, the automotive business has become less important. It did go into healthcare, but that is still new and plodding along,” says an observer.

Oriental Holdings has a 300-bed fully-integrated hospital in Malacca called the Oriental Melaka Straits Medical Centre. Oriental Holdings operates the hospital through the 51%-owned Melaka Straits Medical Centre Sdn Bhd.

Below book value

Oriental Holdings’ businesses span countries such as Malaysia, Singapore, Indonesia, Thailand, Vietnam, the United Kingdom, New Zealand and Australia.

The group had combined assets of RM8.55bil with a shareholders’ fund of RM5.65bil as at Sept 30, 2016.

Although it is a fundamentally strong company, its shares have consistently traded below their book value and are also rather illiquid.

One of the contentions for this is that the company is too conservative and is holding too much cash. As of Sept 30, 2016, the company was sitting on a cashpile of RM2.16bil.

On board: Hui Jing is an executive director in Oriental Holdings.

At RM6.79, Oriental Holdings’ shares are only trading at 0.74 times the company’s book value.

While it has assets worth RM8.55bil, it only generated a net profit of RM123.83mil for its nine months to Sept 30, 2016, indicating that the company is not working its assets hard enough.

Futhermore, the yields on assets could be lower as a lot of its properties and land have yet to be revalued for years.

Dividends, though, have been on the rise. The stock currently has a yield of some 2.65%, and its dividends have been growing at a rate of 27.23% over the last five years. The company pays dividends three times a year.

“I don’t see big changes happening anytime soon. In fact, I think their main priority is to ensure that the businesses are run in a sustainable and stable way. I don’t see them going out to buy and build new businesses,” says the observer.

While Oriental Holdings intends to exit the auto assembly business, it is still in the business of supplying auto parts and distributing Honda cars and motorbikes. These will continue to play a very important role in generating profit.

Looking at its nine-month results, the automotive business provided the lion’s share of profits, contributing RM2.64bil out of a total revenue of RM3.67bil. Profit-wise, the auto sector contributed a profit before tax of RM138.36mil vs a total pre-tax profit of RM93.99mil. Losses were generated in its investment holding, plantation and healthcare units.

While its plantation business generated losses for the nine-month period, it also appears to offer potential and a steady income base, considering it had a total planted area of 55,465ha and a fresh fruit bunch (FFB) production of 632,869 tonnes as of 2015.

It also produces an FFB yield per ha of 21.87% per tonne.

Oriental Holdings also may be looking to grow its retail business, considering it has hotels and investment properties in Malaysia and in Australia, New Zealand and the UK.