Media Clippings

The Star | 25 May 2019

 

Kumpulan Perangsang Selangor (KPS), famous for making a killing on the disposal of its water asset, is continuing its acquisition spree.

 

While detractors question whether KPS would have done better to return to shareholders more from its cash proceeds from the sale of its asset, the company's managing director and

chief executive director Ahmad Fariz Hassan reckons that KPS' acquisitions are aimed at "generating sustainable value to shareholders".

 

From it's divestment in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), KPS received RM569.9mil upfront payment from Pengurusan Air Selangor Sdn Bhd (Air Selangor).

 

It will also receive another RM195mil that will be settled in installments over a period of nine years, which will include a 5.25% interest rate. KPS sees itself as moving into the manufacturing sector and been doing so through a slew of acquisitions in the last two years.

 

The most recent one is to buy a plastic injection moulding firm Toyoplas Manufacturing (M) Sdn Bhd at a price tag of for RM311.25mil. The price seems steep when compared with KPS's market capitalisation of RM559mil.

 

The proposal was announced last Friday and it did not create much excitement to KPS' share price which has dropped by more than 20% since May 7 to trade at RM1.05 yesterday.

 

Notably, KPS had announced a one-off special dividend to its shareholder amounting to 32.6 sen share or RM175.19mil that will be paid on May 28. The ex-date for the dividend payment was May 13.

 

Interestingly, the acquisition of Toyoplas proposal was announced two days after the ex-date of KPS' special dividend.

 

Since 2016, KPS has been busy acquiring companies including cement packaging provider Century Bond Bhd, plastic injection moulding firm CPI (Penang) Sdn Bhd, and King Koil, a mattress brand licensing business.

 

In addition, KPS has controlling stakes in road and highway construction company KPSHCM Sdn Bhd and water treatment chemical supplier Aqua-Flo Sdn Bhd.

 

Ahmad Fariz says that KPS' previous acquisitions have contributed "tremendously" to die group. "With higher controlling stakes in these investments, we now boast unique selling propositions in each of our businesses. We have a very attractive business model," he tells StarBizWeek in an email reply.

 

He points out that the acquisition exercises are part of the group's strategic Business Transformation Plan (BTP), which was rolled out in 2016.

 

"The ultimate goal of the BTP is simple, we want to generate sustainable value to our shareholders," Ahmad Fariz says.

 

The major shareholder of KPS is the Selangor state government via its investment aim, Kumpulan Darul Ehsan Bhd with a 58% stake.

 

It has been reported that prior to its sale, Splash had been contributing about RMl00 mil in annual profits to KPS.

 

This is the gap that KPS is looking to fill via its acquisitions. Ahmad Fariz says that KPS' main acquisitions so far, namely King Koil, Century Bond and CPI, have been earnings accretive.

 

"We have seen improvement in our operating profits since these acquisitions. In fact, FY18, we registered operating profits of RM5l.5mil," he says, adding that these businesses are expected to command strong margins.

 

"The businesses that we have acquired all possess expertise in their respective fields. They also have the capacity to expand and extend their leads," he says.

 

On the proposed acquisition of Toyoplas, KPS said the deal comes with a profit guarantee of a profit-after-tax of not less than RM39.6mil in the financial year ending Dec 31,2019 (FY19) and at least RM42.3mil in FY20. Toyoplas is being acquired a historical price earnings multiple of 8.6 times.

 

KPS says that the proposed acquisition of Toyoplas presents KPS with an opportunity to expand its plastic injection moulding business, which is currently undertaken by CPI.

 

KPS bought into CPI, a plastic injection moulding firm in Penang, for RM250mil cash back in February last year.

 

In FY18, CPI made about RM127.3mil revenue, contributing 22% to KPS' revenue.

 

For FY18, KPS' manufacturing business contributed 61.4% of total revenue. This came from Century Bond, CPI and King Koil.

 

KPS said the proposed acquisition of Toyoplas will be funded via a combination of internally-generated funds and bank borrowings. Ahmad Fariz says that KPS is always looking for ways to grow the company to create sustainable value to its shareholders.

 

"If there is something interesting in the market and related to our existing core businesses, why not? Basically, we continuously look into other investment opportunities that can provide the furtherance to what we have already achieved," he says.