Cash-rich companies on Bursa

Imran Yassin: Current low market valuations may attract M&A activities but if there are no synergies then the likelihood of it happening may be low.

FOR investors seeking value, cash-rich companies are always worth keeping an eye on.

In fact, with the rising expectations of a global economic slowdown or even a recession this year, the attention on companies’ cash holdings has only increased.

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A healthy cash position is one of the popular indicators to evaluate whether a company’s financials are sound enough to withstand any unforeseen shocks.

Cash-rich companies are usually supported by a “liquidity buffer”, which allows them to meet their debt obligations easily and carry out operational expansion without the reliance on external financing.

As for shareholders, cash-rich entities offer promising and sustainable dividend payouts without resorting to borrowings.

On Bursa Malaysia, several companies have built strong cash positions over the years, amid the Covid-19 pandemic.

This article looks at the Top 10 cash-rich companies below the RM1bil market capitalisation.

The data, based on cash and securities of a listed company minus its debt amount, is provided by EquitiesTracker and is based on latest audited financial statements.

The data excludes companies from the financial sector and those financial statements that are not reported in ringgit.

Loss-making MCT Bhd topped the list, with a whopping net cash position of RM458.4mil based on the latest audited accounts.

The construction and property developer’s net cash level is almost twice its market capitalisation of RM240mil.

Interestingly, the net cash level had surged by over 721% over the past three financial years.

The surge began in the financial year of 2018 after the group handed over its four major projects, in addition to the divestments of its investment assets and hotel operations for RM199.3mil.

However, it is noteworthy that MCT has an inter-company loan. It owes almost RM580mil to its ultimate holding company, Ayala Land. This means that its cash position isn’t as rosy as it seems.

MCT became a subsidiary of Ayala Land Inc, the biggest property group in the Philippines, in February 2018.

As a stock, the share price is hardly reflective of MCT’s strong cash position. As of Jan 27, the counter closed at 16 sen apiece.

MCT’s share price has remained depressed for the past several years. A key reason for the poor share price performance is the weak investor sentiment on the construction and property market.

The group has also been loss-making since the Covid-19 pandemic struck. Its revenue has also consistently dropped in recent years.

For the first nine months ended Sept 30, 2022, MCT recorded a net loss of RM7.6mil against a revenue of RM148.4mil.

Coming in at second place on the cash-rich list is loss-making Dutaland Bhd, which is involved in the oil palm and real estate industries.

At a market capitalisation of RM250mil, DutaLand sits on a net cash position of RM415.7mil.

Over the past three financial years, its net cash level however has declined by over 17%.

However, even this cash position isn’t all that clear cut. This is because it is assumed that the cash position includes DutaLand’s financial assests, which amounted to over RM340mil as at its latest financial quarter.

In its notes, the company says that the financial assets are made up of equity holdings in Malaysia and abroad as well as unit trust investments.

The group, which began its financial year of 2023 with a net loss of RM7.4mil, has been seeing some improvements in its plantation and commodity trading businesses, although the property development segment remains in the red.

Cautious outlook

Looking ahead, DutaLand has painted a cautious outlook.

“The group remains cautiously optimistic on the current market recovery due to the unpredictable external factors such as the war in Ukraine, disruption of global supply chain and interest rate hike,” it says.

Going forward, DutaLand says its investment strategy remains centred on diversification into highly liquid assets, anchoring off short-term money market instruments with the objective of generating relatively higher-yielding income for the mid to long-term period and less volatile investments.

Data from EquitiesTracker ranks Magni-Tech Industries Bhd as the third most cash-rich company below the RM1bil market capitalisation.

The garment manufacturer’s net cash level is valued at almost RM396mil based on the latest audited accounts.

Magni-Tech is also involved in the manufacturing of flexible plastic packaging.

Leveraging on its cash-rich position, Magni-Tech had said earlier that it will continue to expand production capacity to support the potential increase in customer demand for the next three to five years.

Concurrently, it will also pursue production locations diversification to have multiple production bases in order to mitigate the risk of production base concentration.

“For the packaging segment, given that packed food products have made a profound impact on modern lifestyle, we will continue to focus on food and beverage and other fast moving consumables, pharmaceuticals and healthcare-related products.

“Not only that these products command higher value-added, they are recession proof and may also ride on higher demand due to population growth,” Magni-Tech said in the latest annual report.

The only media-based company on the cash-rich list is Star Media Group Bhd (SMG), with a net cash level of RM328.8mil.

In comparison, the group’s market capitalisation stood at RM233mil as at Jan 27. SMG, which has returned to the black, has been seeing consistent recovery in earnings in recent quarters.

In the first nine months ended Sept 30, 2022, SMG recorded a net profit of RM6.5mil against a revenue of RM158.95mil.

The group is poised for a stronger growth ahead, especially given its potential to undertake value-accretive acquisitions on the back of its strong net cash position.

It is also well-positioned to expand its operations organically.

SMG has said in a filing to the stock exchange that it will continue its efforts in sustaining its investments in its digital transformation initiatives, especially in order to strengthen its market share in the Malay community.

It is also worth noting that Hextar Healthcare Bhd (Hexcare), formerly known as Rubberex Corp (M) Bhd, is ranked eighth among the top 10 cash-rich companies on Bursa Malaysia.

The net cash level surged by almost 540% over the past three financial years.

Hexcare, which benefited massively from the pandemic-driven demand for gloves, saw its exceptional earnings pushing up its cash holding.

In addition, the RM66.1mil cash proceeds from a private share placement exercise in August 2021 also led to the surge in Hexcare’s cash position in recent years.

While the group has previously said that it is well-geared to undertake strategic investments, thanks to its strong cash reserves, it appears that any expansion plans may be out on the backburner given the softening average selling prices of gloves.Hexcare said it is mindful of competition and operational risks such as foreign exchange fluctuations, supply chain disruptions, material and labour costs that could impact on its financial results.

Is cash king?

With the year 2023 expected to witness a slowdown in economic activities, one wonders whether it may be an opportune time for mergers and acquisitions (M&A).

Speaking with StarBizWeek, MIDF Research head Imran Yassin Md Yusof does not discount such a possibility.

However, he says it will depend on the market situation, business strategy and valuations.

“Current low market valuations may attract M&A activities but if there are no synergies then the likelihood of it happening may be low.

“Besides, the cash level of a company may not be an indication that it will be an acquirer.

“There are various ways to fund an M&A besides cash, such as issuing shares and debt.

“In fact, cash-rich companies may also be a target of acquisition because their cash level may be deemed to be attractive enough,” he says.

Alvin Vong, the chief executive officer (CEO) of Equitiestracker Holdings Bhd, says that in a period of economic slowdown, cash-rich companies would be able to cherry-pick other companies for M&A.

“As the economy slows, there will be companies that are short on liquidity.

“These companies could be potential companies to acquire.

“In addition, it is also a good time for capacity building, so that you can capture growth opportunities when the economy recovers,” he adds.

Areca Capital CEO Danny Wong says that “cash is king” when a company knows how to use it well.

“Cash must be used to expand operations, acquire a new business or venture into a new business sector,” he says.