For every 1,000 shares an investor had bought in Tan Chong Motor Holdings Bhd (TCM) in 1973 and held it for forty years, he would have pocketed some RM3,005 purely in cash dividends. Apart from cash, the investor would have also got free shares in a Hong Kong-listed company and two other local companies during a de-merger in 1999.
This is amidst the tough business environment in the automotive industry where companies producing national cars had for long an advantage over non-national car manufacturers.
Tan Chong Motor, one of the oldest listed automotive companies in Malaysia, has not only survived the downturn of three economic cycles but also the introduction of a more competitively-priced national car which ate into Tan Chong’s market share in the second half of 1980s.
Along the way, it also managed to iron out a family tussle for control over the company reins, away from the ogling public eye.
Time and again, Tan Chong Motor has kept its appeal as an automotive stock with a reliable business philosophy and a financial performance that overtakes itself almost every year.
Last year, the company recorded a net profit of RM250.95mil, doubly higher than RM164.66mil in the 2012 financial year.
This, however, is helped by a one-off item in revaluation of the properties, an executive in the company said.
The bump in the financials was due to a revaluation exercise on its property assets that resulted in a RM591.4mil surplus, trimming down its net gearing to 0.42x in the 2013 fourth quarter versus 0.56x in the previous quarter.
“Tan Chong International Ltd (TCIL) and TCM made huge gains this year due to the bump in their revaluation reserves. The Tan Chong group has more than 100 undervalued properties and the reason for revaluation is to bulk up shareholders’ funds to support increasing business,” the executive says.
He adds that the group employs a strategy of consolidating and strengthening its balance sheet in one year, and investing in growth the following two years.
“We don’t expect a repeat of this record performance this year. The markets are tough especially in Malaysia where TCM derives the bulk of its sales apart from Vietnam and Myanmar,” he says, grounded in his outlook for 2014. “However the group is on the path to achieving sales of 100,000 vehicles for the entire group by 2016. Now they are doing close to 60,000.”
He notes that 80% of TCM sales is still in Malaysia where “car prices are supposed to come down, causing people to delay making decisions”.
That said, TCM is on track to achieve sales of 100,000 by 2016 after the group introduces new models in 2015 and 2016, the intended growth years. Its sales volume is about 60,000 now.
TCM has come a long way from 1985 when its market share dropped from 30% to a mere 3% after national carmaker Proton came into the local automotive space. At their height, Proton and Perodua had 80% market share, won over by their attractive prices.
Non-national cars have been making a steady comeback since, where its 16% market share in 1999 has gradually grown to 47% last year.
Tan Chong group is one of those who have shown resilience and tenacity.
The executive believes that demand for non-national cars will continue to grow “but there will be years when there is some consolidation like 2014.”
TCM is parent company, Tan Chong Consolidated Sdn Bhd’s (TCC) main earnings driver and contributes a bigger portion than those of its sister companies.
But it is not the sole star under the TCC stable. Its sister companies - APM Automotive Holdings Bhd, Warisan TC Holdings Bhd and Hong Kong-listed TCIL - have also proven their worth, collectively securing a year of record achievements in 2013.
These three sister companies were listed in 1999, after demerging from TCM.
APM, Warisan TC and TCIL have since given out total dividends of RM204.60, RM117.30 and HK$89.50 respectively, for every 100 shares held.
Note that when these companies demerged from TCM, the shareholders were given free 300 TCIL shares, 30 APM shares and 10 Warisan TC shares for every 100 shares they held.
Last year, the return on equity from all four companies were in the double digit area - TCM giving 10.7%, APM 13.7%, Warisan TC 11.52% and TCIL 20.35%.
In 2009, the Tan family settled the family boardroom tussle where Datuk Tan Heng Chew was at logger heads with his unclde Datuk Tan Kim Hor. Heng Chew’s father Tan Sri Tan Yuet Foh and Kim Hor were the founders of the Tan Chong group in the 1970s.
An industry observer says the nearly decade-long family board tussle through the 2000s resulted in an overhang on the stock as investors tip-toed around the stock, anticipating a selldown by the Tan families.
Another industry observer close to the Tan family says the performance of the companies’ share prices were never a concern. “For the Tan’s, it is about being in the driver’s seat of their conglomerate and defending that position.”
On why the demand for the shares spiked as soon as the family tussle was over, the observer said “big decisions can now be made without one side vetoing the other.”
“People wanted to buy the shares without getting dragged into the feud, and also some family members also wanted to buy some shares,” the observer says.
To recap, the dispute began in 2001 when Datuk Tan Kim Hor and his family filed a petition against Heng Chew’s family in High Court to wind up TCC, to have the assets in the company distributed in specie.
Heng Chew’s family had controlled a 55.4% stake in TCC, while Kim Hor’s had 44.6%. In turn, TCC had directly owned 46.51% in TCM and 45.34% in TCIL.
Heng Chew had moved to defend his family’s stake in TCC, striking out a notice of motion against the petition and then, not supporting Kim Hor’s re-appointment as a TCM director in the 2002 AGM.
The Heng Chew team also beefed up their stake in ultimate holding company TCC to 75% when some members of the Kim Hor team sold out. However, the Tan families decided to settle their feud outside the courtroom.
The various suits were withdrawn and the feud settled through an arrangement that TCC will maintain an effective stake of about 33% in the listed companies and release the rest progressively to exiting minority shareholders in TCC over five years, by 2014.
The families has since gone their separate ways, save for Kim Hor’s eldest son Kheng Leong, a Singapore citizen, who is the executive director in TCIL. It was reported that Kheng Leong, with his brother Kang Leong was not in favour of exposing the family feud in court in 2001.
The feud is past and buried, and the companies under the Tan Chong conglomerate have continued to flourish.
TCC now holds 42.93% in TCM, 39.88% in APM, 38.4% in Warisan TC and 35.06% in TCIL.
Based on the market capitalisations of these companies at RM3.57bil, RM1.21bil, RM220mil and HK$6.44bil (RM2.72bil), TCC is valued at RM3.05bil.
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