FOUR months since emerging as the new single largest shareholder of beleaguered KUB Malaysia Bhd, Datuk Seri Johari Abdul Ghani (pic) has shed some light on his plan to turn around the company.
The former second finance minister seems bent on getting the most out of KUB, a company he sees as heavily undervalued.
Johari purchased his 178.06 million shares of KUB at a price of 68 sen apiece in March, at that time a premium of 28.5 sen or 73% to its price of 39.5 sen a share.
KUB’s shares are now trading at 36.5 sen, at a price-earnings ratio (PE) of 25 times historical earnings.
He now owns a 32% stake in the company through his vehicle JAG Capital Holdings Sdn Bhd and was appointed as chairman of KUB in April.
KUB is known for its A&W franchise, which was sold in July last year for RM34mil.
The company now has six other businesses, ranging from liquefied petroleum gas (LPG) operations to power and information, technology and communications (ICT).
Its LPG bottling business is the biggest contributor, making up 80% of KUB’s revenues followed by its plantation business (11%) with the balance coming from the telecommunications, power and property businesses.
“KUB’s plantation assets and its LPG bottling plant have more value to be extracted,” Johari tells StarBizWeek.
He reckons that the value of the company is “not properly explored” and it can be unleashed with the right management team.
“By putting the right management team to the respective business units, I foresee the value (of the assets) can go up by 30% to 50%,” he says.
Johari is no stranger to the corporate world. He had made his name in quick service restaurant chain KFC and QSR in the late 1990s before disposing of his interest in the group in 2005.
Johari was also the group managing director of CI Holdings Bhd for more than 12 years until July 2015 when he was appointed to the Cabinet.
At present, Johari is CI Holdings’ director and single largest shareholder with an indirect stake of 32.72%, also held through JAG Capital.In terms of earnings, KUB is not very exciting.
But the company has been working to strengthen its financials including via asset disposals.For the first quarter ended March 31, 2019 (FY19), the company posted a 93% drop in net profit to RM390,000 compared to RM8.25mil a year earlier.
Last year, the company suffered impairment losses related to its palm oil mill in Mukah, Sarawak, which caused KUB to post a lower profit of RM1.17mil in FY18 compared to RM32.85mil in FY17. Johari says the factory in Mukah is not in running condition, and as such, KUB had decided to dispose of the asset and use the proceeds to pare down bank borrowings
On Tuesday, KUB announced the disposal of its factory in Mukah, including a parcel of land, for RM44.8mil. Additionally, according to KUB’s 2018 annual report, the company is also selling a piece of leasehold land in Petaling Jaya, Selangor for RM35.54mil, which it aims to complete by this year.
Banking on three businesses
Moving forward, Johari says KUB will be focused on its core businesses and plans to divest its electrical, power construction businesses.
“We will continue focusing on the LPG business to service requirements of industries.We will improve our palm oil estate management to increase the yield per hectare and be ready for the next up cycle of palm oil prices.
“As for the ICT business our focus will be to venture into the Internet of Things (IoT) and exploring the next wave of artificial intelligence,” he elaborates.
The disposal of assets and non-core businesses would help to free up some cash for KUB to expand its current businesses.
As of March 31, 2019 KUB had cash of RM99mil and borrowings of RM138mil.
Its net tangible assets per share stood at 57 sen.
“As for now, we want to focus on creating value of all our investment and assets.We will not rule out any merger and acquisition in the near future if any opportunity arises.
“As of now there are a few on our table but it is a bit too early to discuss that at this stage,” Johari says. He adds that KUB is working on streamlining its businesses, including reorganising its management to make it a more lean organisation.
For its LPG business, it recently completed the construction of its LPG bottling plant in Beranang, Selangor, which involved RM11mil in total investments.
The new bottling plant is expected to reduce the company’s logistics cost and improve its margins.
On the plantation business, KUB’s oil palm plantation area stands at 8,866 ha, located in Johor, Sabah and Sarawak.
Last year, KUB’s palm oil business was hit following the plunge in crude palm oil (CPO) prices from an average of RM2,800-RM3,000 per tonne to below RM2,000.
However, the recent recovery of CPO price by 6% to US$2,053 per tonne would provide some earnings improvement for this second half
Transformation is not something new for KUB. The company, which was once politically-linked to UMNO saw its first major shareholding change in mid-2017, when Anchorscape surfaced as the controlling shareholder with a 22.55% stake. This came about after it had exercised a call option to buy out the Ministry of Finance Inc from KUB.
Anchorscape ended up with a controlling 52% stake in KUB after it extended a mandatory takeover for other KUB shares
Anchorscape is a unit of Temasek Padu, which was said to be linked to prominent lawyer Datuk Zulkifly Rafique of Zul Rafique & Co and his partner and former KUB chairman, Tunku Alizan Raja Muhammad Alias.
Johari bought his stake from Anchorscape
It was in 2017 that KUB posted its historical high profit of RM32mil, compared to RM2.3mil in 2014.