KUALA LUMPUR: Plywood manufacturer Eksons Corp Bhd has proposed a capital repayment of 20 sen a share because the company is cash generative and has about RM60mil cash.
In addition, the company is “optimistic of prospects in the industry,” managing director Tay Hua Sin said in a meeting with StarBiz yesterday. High plywood prices would ensure that Eksons should continue to produce ample cashflow.
Tay is based in Sibu and Tawau, in Sarawak and Sabah respectively, where Eksons' plywood mills are located.
The proposal took into consideration the fact that the company under the present management had not paid any dividends in the last six years.
The company did not have any tax credit under Section 108 of the Income Tax Act to enable it to pay dividends without having to pay more tax.
Eksons' earnings were tax-free as its subsidiaries enjoyed pioneer status, but the Tawau subsidiary's pioneer status expired this year and this would facilitate the payment of dividends.
The group's tax would still be low, however, as it still has substantial investment tax allowances.
The capital repayment proposal was advised by Southern Investment Bank Bhd, which is also the adviser of Digi.com Bhd, which is also making a capital repayment to shareholders.
Tay said Eksons' capital repayment would be followed by dividends on a regular basis.
Following the proposed capital repayment amounting to RM33mil, Eksons would still have about RM27mil, which would be more than sufficient for investments.
The company has proposed to enter into a joint venture with the Tempo group to develop commercial properties in Seri Kembangan outside Kuala Lumpur.
This project, a diversification for Eksons, involves a cash outflow of not more than RM12mil over a few years.
The management has been selective and this project is expected to generate revenue of RM300mil to RM400mil over a five- to seven-year period.
Eksons plans to diversify as it would not be expanding its plywood capacity. Such an expansion would involve constructing a new plant, which would then make the availability of logs an issue as there is a shortage in this region.
The company hopes to diversify into oil palm plantations, either in Sabah or Sarawak, and is scouting for suitable land.
Its diversification programme would be financed by its operating cashflow, which averages about RM40mil a year. That appears sustainable in view of the record ringgit prices of plywood products currently.
As such, analysts expect Eksons to report a higher profit this year, which should be bolstered by its biomass plant to replace its diesel generation set.
With the biomass plant, which uses wood waste as fuel, Eksons will no longer need to spend about RM1mil a month on diesel.
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