BY C.S. TAN
FOR some time now, companies controlled by Tan Sri Syed Mokhtar Al-Bukhary have suffered from a poor image. The most common concern over his group is that it is stretched and it could suffer the same fate as the Renong group.
The Renong group had very high levels of borrowings, and almost all its member companies were at pains to carry the debt burden. This was a factor that caused losses in many of the Renong group companies.
It is clear by now that in this critical factor, the Syed Mokhtar group differs from Renong, which had to be restructured and is now known as UEM World Bhd.
In Syed Mokhtar's group, there is a trend of debt reduction through the use of surplus operating cashflow, management of receivables and maintenance of cash reserves.
Perhaps, the group has learnt from the bitter experience of the Renong group.
It is observable that in other aspects of management, Syed Mokhtar group companies have cut costs, raised revenues and naturally, showed improved operating results.
There is so much that can be mined from the group as the size of its assets is huge. It has, in fact, more public-listed companies than the Sime group, although not as large in market capitalisation.
The Syed Mokhtar group could, one day, rival Sime in size.
Stemming from this engagement in many sectors of the economy, the Syed Mokhtar group is often criticised on a lack of focus.
The same might be said of Sime but all its component businesses seem to be reasonably well-managed.
So it is with the Syed Mokhtar group where, it is believed, the centre sets key performance targets, but the day-to-day operations are handled by the respective CEOs.
In addition, the CEOs, being familiar with the industry they are in, play a large role in setting the long-term strategies as well. These companies have begun to show a sense of direction and early signs of growth.
Unlike Sime, the Syed Mokhtar group does not have a listed, ultimate holding company. The closest it has to that is Malaysia Mining Corp Bhd (MMC).
MMC''s Port of Tanjung Pelepas (PTP) has turned in profits ahead of schedule and registered double-digit growth in cargo throughput.
There is also an overlooked facet in MMC and this is its 41% stake in Gas Malaysia. The latter company supplies natural gas, the cheapest form of energy, to industrial users. It is expected to find strong demand for this product.
The most profitable member company in MMC is, of course, Malakoff Bhd, an independent power producer.
Shareholders would have felt rewarded with Malakoff's higher earnings and dividends in its latest quarter.
Malakoff has gradually moved up, but like all companies in the group, trades at a discount to its peers.
Hence, its valuation based on its share price is just about 9 times its estimated net profit this year.
Johor Port Bhd, another member company, also turned in an improved set of results in its quarter ended March 31.
Its net profit rose by more than 33% to RM21.4mil during that period.
Like Malakoff, Johor Port is also trading at a reasonably low price of about nine times this year's earnings.
In another side of similarity, Johor Port is also cash-rich. Its cash hoard increased by about RM10mil to RM225mil in that quarter.
Padiberas Nasional Bhd (Bernas) marked a sharp turnaround in its first quarter this year, achieving a net profit of RM39.5mil from a loss in the first quarter of last year.
The cheapest of the stocks in the group, Bernas is trading at just about 5 times its earnings this year.
One of the few member companies that still seem to be struggling is Pernas International Holdings Bhd (PIHP) but the Syed Mokhtar group had stepped into this in a rescue operation. It will take more time to put PIHP onto a firmer footing.
Even so, all its operating divisions - hotels, properties, sugar processing and plantations - were profitable in the first quarter.
PIHP is, however, still bogged down by debts of RM2.4bil, which will be gradually pared.
The Syed Mokhtar group has other interests in tin mining (Malaysia Smelting Corp), construction (IJM Corp) and plantations (Tradewinds and Johore Tenggara Oil Palm or JTop). All of these companies are financially resilient and demonstrably growing their earnings.
Although most of the companies in the group are valued at a discount in the market, at some point, investors will recognise there is consistency of sound management in the group. The stocks will then be given premium value, like Sime stocks are. RENONG-WA : [Stock Watch]
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