Valuable lessons from the Maruichi story


  • Business
  • Thursday, 12 Jun 2003

FOR a low profile, media-shy, but highly profitable steel pipes maker that was formed some 35 years ago, Maruichi Malaysia Steel Tube Bhd seems to have a knack in attracting attention and market gossip, not to mention controversy, in the past year. 

Its latest announcement of an incredibly generous dividend of 250 sen had investors gasping and awed. 

The company's shares shot up by as much as 98 sen yesterday to RM4.26 – the biggest one-day gain in 10 years. At the close, the counter was up 54 sen at RM3.82. 

Maruichi said it proposes to pay a tax-exempt dividend of 70 sen, plus an interim dividend of 180 sen less tax. The payout totals a staggering RM316mil. 

The huge dividend payout raises a few pertinent questions: 

(i) Why is the board of Maruichi declaring such a big dividend at this juncture? 

(ii) Who stands to benefit from such a huge payout? 

(iii) What are the future prospects for Maruichi minus its huge cash pile? 

Last December, Maruichi stirred up a storm of controversy when it announced it was buying a 32.5% stake in Malaysian Merchant Marine Bhd (MMM) for nearly RM100mil. 

The proposed purchase was hugely unpopular, even among some of its biggest shareholders, because the price was considered far too high. Maruichi had to back off from the deal in the ensuing uproar. 

Maruichi's image was badly bruised by the MMM fiasco, and Maruichi's shares plunged to a 19-month low. 

This time, the controlling shareholder, the Melewar group, was well prepared, anxious to avoid another public relations disaster. 

At a media conference yesterday, Maruichi managing director Tunku Ya'acob Tunku Abdullah explained that the company did not need to hold so much cash for its operations in the foreseeable future, and was therefore returning the cash to shareholders to be used at their own discretion. 

Since it's a dividend payout, all shareholders will be entitled to this largesse, in proportion to their shareholding.  

The biggest shareholders of Maruichi currently are the Melewar group (31.6%), which bought its stake last September, and the Employees' Provident Fund (13.3%). 

The Melewar group would certainly find the cash very handy to finance some of its acquisitions and expansion. 

Tunku Ya'acob said in future Maruichi would pay out 50% of its net profits to shareholders in dividends. 

This is a good move, very much in line with the practice in Western countries where the dividend payout is normally 30% to 70% of a company's after-tax earnings.  

Most Malaysian companies pay less than 30% of their profits as dividends.  

It's difficult to speculate on the future outlook for Maruichi.  

Some analysts feel Maruichi would undergo a transformation under the Melewar group and say they prefer the current business set-up.  

An investment advisory service sees Maruichi as a good trading buy, but not for the conservative investor. 

However, Tunku Ya'acob is confident that the Melewar group would steer Maruichi to greater commercial success.  

He felt that under the previous board and management, insufficient attention was paid to marketing, particularly to government agencies, an area which he would rectify. Maruichi would be renamed Melewar Industrial Group

Tunku Ya'acob also felt that the proposal to list Maruichi's subsidiary, Cold Rolling Industry (M) Sdn Bhd (CRIM), and distributing a big portion of CRIM shares to Maruichi's shareholders would unlock value for shareholders. 

There are lessons to be learnt from the Maruichi story. 

First, minority shareholders are now very vigilant. If they don't like a deal, they will kick up a furore. It is no longer that easy for a controlling shareholder to have its way. Also, the market will punish a company if a deal is perceived to be not so transparent, irrespective of the ultimate merits of the proposal. 

Directors and the controlling shareholders in particular should therefore be seen to be as transparent as possible when making a significant proposal and provide all relevant information as expeditiously as possible to shareholders and investors.  

Shareholders and investors, on recognising a good deal that is fair to all parties, will react accordingly, i.e. they will support the company and its shares. 

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