Seal sheds messy past

WITH a host of legacy issues behind it, Seal Inc Bhd, which has its roots in the timber business, looks ready to make a clean break from the past.

Formerly known as Southeast Asia Lumber, the low-profile, Penang-based firm now earns most of its money from property development.

The Main Market-listed Seal is still lumped under the “industrial products” category on the stock exchange, which its management is in no hurry to change.

“Bursa Malaysia has asked us to update our classification, but we said hold on. At the end of the day, the bottom line is more important,” Seal CEO Chuah Chong Ewe tells StarBizWeek.

Little is known about how ownership of Seal changed hands a decade ago, after the previous owner lost control to the current major shareholders.

Seal had also garnered a dubious reputation circa 2004-2005 for being a played-up stock. Past reports indicate that Seal was a “casualty” of unusual trading activities in May 2005, which the company was at a loss to explain.

Its shares had plunged 79% in three days, wiping out RM174mil from its market value. It didn’t help that Seal had RM200mil in accumulated losses and liabilities that exceeded its assets.

In June the same year three Penang-based individuals emerged as substantial shareholders in the company, scooping up a combined 20% following a sharp drop in its share price.

One Tan Lam San obtained the bulk of the shares (8.6%), with the rest going to Fang Siew Poh (5.5%) and Koay Teng Choon (5.1%). Tan had ceased to be a substantial shareholder in 2006, but Fang and Koay have stayed on.

Bursa filings show that Fang, the sister of executive director Doris Fang, currently owns a direct and deemed interest of 19.41% in Seal. Koay, who also sits on the board, has increased his stake to 10.35%.

Under the new management led by Chuah, Seal went through a restructuring that saw it hive off Selayang Mall and land in Seberang Prai to pare down its debts to RM5mil from RM80mil.

Its timber operations were also scaled down tremendously.

“When we took over the company, we could see that timber was a sunset industry. Manufacturing is burdensome – you end up with a lot of paper profit, but it’s stuck in stocks and machinery,” explains Chuah, a corporate lawyer by trade.

Seal had disposed of one of its key timber units, Great Eastern Mills, to a third party several years ago.

“We inherited it, but all it had was lots of debt. And timber concessions with good yield in Kelantan were hard to come by,” Chuah quips.

Great Eastern Mills was eventually sold to a Kelantanese businessman. However, Seal is adamant that it will not exit its remaining timber operations.

The group holds concessions for over 5,500 acres of forest in Perak and 7,000 acres in Kedah, which it has begun logging.

Its timber business was loss-making in the 2013 financial year to the tune of RM5mil, mainly due to non-recurring write-offs and a settlement with trade unions, Doris explains.

Despite making hefty provisions, Seal’s timber arm raked in an operating profit of RM2.3mil.

Perhaps due to its size, Seal is easy to miss as a stock.

It has a share base of only 215.63 million shares, and an even smaller market capitalisation of RM138mil, based on Thursday’s closing price of 64 sen, which is near its best level in two years.

Its free float stands at 63.5%, or 136.8 million shares, Bloomberg data shows. The counter has traded between a one-year peak and trough of 66 sen of 40 sen.

At its current price, Seal is valued at six times earnings and only 0.8 times book. The company has not paid dividends since at least 1991, according to Bloomberg.

For a small cap counter, liquidity is decent at a 30-day average volume of 1.59 million shares. Even without the coverage of analysts, Seal has returned 52.4% over the past one year.

In terms of earnings, the group’s top line grew at a five-year compounded annual growth rate up to 2013 of 36.6% and net profit by 15.5%, although net margins have noticeably slipped from a high of 24.8% in 2009 to 10.7% last year.

For his part, Chuah concedes that Seal has fallen out of favour with some investors, especially those who had had their fingers burnt.

“The market still thinks we are PN17, even though we were never PN17 in the first place. The investing public might not have had the patience to understand what was going on with the restructuring,” he quips.

But that doesn’t seem to give him sleepless nights.

“Being from Penang we live life simply. We wear slippers and cut deals in coffee shops. Maybe life has to change,” he muses.

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