Southern Acids (M) Berhad

Other cash rich companies that come to mind is... $SAB / 5134 (SOUTHERN ACIDS (M) BERHAD) , $ASIAFLE / 7129 (ASIA FILE CORPORATION BHD) ...

RHB IB Advocates Diversification for Plantation Sector

Following a previous suggestion by Maybank IB for plantation companies to venture into solar power, RHB IB echoes this sentiment and further recommends broader diversification within the sector.

RHB IB advises plantation industry players to diversify beyond CPO to fortify their businesses. The bank notes that some companies have already explored property development, fruit farming, glove manufacturing, and dairy farming. Moreover, recent trends show a shift towards environmentally sustainable diversification, such as producing wood, fertiliser, and other products from palm oil waste.

However, RHB IB points out that except for land-related ventures like property development, these efforts haven't significantly impacted earnings. The bank highlights the potential for more impactful diversification through projects like data centres or renewable energy, such as solar farms. RHB IB estimates that solar energy could be 26x more profitable per hectare per year than oil palm cultivation.

Given the challenges of lower yields, ageing trees, environmental pressures, and rising costs, RHB IB stresses the need for alternative strategies. While CPO prices have surged, they remain volatile and could fall below breakeven levels. RHB IB expects long-term CPO prices to hover between RM3,000 to RM3,500 per tonne but urges companies to focus on revenue growth, cost management, and diversification. Additionally, RHB IB recommends enhancing mechanisation, investing in research for better-yielding seedlings, and prioritising ESG practices to secure premiums.

For poorly performing yet asset-rich companies like $SAB / 5134 (SOUTHERN ACIDS (M) BERHAD), this diversification could be a viable strategy, although management is currently focused on CAPEX for equipment upgrades.

$SAB / 5134 (SOUTHERN ACIDS (M) BERHAD): Awaiting Value Realization

1. Background
The company's business segments are divided into three areas: oleochemical manufacturing, milling and cultivation, and healthcare services.

2. Free Float
Company directors own half of the total issued shares, followed by Lembaga Tabung Haji with 11.3%, and the remaining 38.4% are publicly owned.

3. Financial Performance
The company's performance has been unstable, with revenue growth observed from FY20 to FY22, followed by a decline in FY23 and FY24. Notably, the company's total assets have grown, reaching RM1.02 billion in FY24. Despite an increase in cash and borrowings, the company remains net cash positive. In FY24, the company had a net asset per share of RM5.69 and a net cash per share of RM2.71, meaning 81.6% of the current market capitalization is in cash.

4. Valuation (Assets)
Considering the net cash per share of RM2.71, the value of shares in $PARAMON / 1724 (PARAMOUNT CORPORATION BERHAD) (approximately RM0.22 as the third-largest shareholder), and the land and building valuation (RM1.56), the total is RM4.49. This represents a 31.3% discount to the current share price.

5. Valuation (Assets + Earnings)
In the first method, only the company's assets were calculated. Adding the EPS of RM0.1 achieved in FY24 (the lowest in 8 years) and assuming the company continues to achieve this in subsequent fiscal years, the value per share would be RM4.59, which is a 34.2% discount.

6. Key Highlight
The recorded land value is lower than the market value. The company owns 260.82 hectares in Thangamallay Estate, recorded at RM139.87 million (equivalent to RM4.98 psf). However, 10 years ago, $GAMUDA / 5398 (GAMUDA BERHAD) purchased land 6.5 km away for RM35 psf, which was leasehold, whereas Thangamallay Estate land is freehold. This suggests the recorded land value is below market value.

7. Prime Location of Thangamallay Estate
Thangamallay Estate is located 2.6 km from TECHBOND, 4.7 km from $UNIQUE / 0257 (UNIQUE FIRE HOLDINGS BERHAD), 3.5 km from $TROP / 5401 (TROPICANA CORPORATION BERHAD), 4 km from IJM's Rimbayu, and 6.5 km from Gamuda Kota Kemuning.

8. Revaluation with Estimated Land Value for Thangamallay Estate
Using Gamuda's purchase price from 10 years ago as a benchmark, Thangamallay Estate's land could add an estimated RM6.15 per share. This would bring the company's value to RM10.64 per share (assets) and RM10.74 per share (assets + EPS), resulting in a 212.9% and 215.9% discount, respectively. However, it's important to note that the current land value might be lower than Gamuda's purchase price, making this a rough estimate.

9. Research Reports by RHB Investment Bank
RHB Investment Bank's 2018 research report indicated that SAB was undervalued in terms of assets, though the timing for value unlocking remained unclear. In 2019, RHB followed up, citing the sluggish property market as a key obstacle for the company to unlock its value.

10. Conclusion
SAB is a cash and asset-rich company generating free cash flow, with undervalued land recorded in its books. However, it could be a value trap due to uncertain value unlocking timelines, low dividend payouts, and declining growth, as seen in FY24. To unlock its land value, SAB could consider developing the land itself or partnering with Paramount, given SAB's significant shareholding in Paramount and the close relationship between the two companies. The flourishing property market presents a timely opportunity for such actions. If the company does not act, the timeline for unlocking value will remain uncertain, potentially keeping the share price stagnant for an extended period.

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : RECURRENT RELATED PARTY TRANSACTIONSProposed Renewal of Shareholders' Mandate for Existing Recurrent Related Party Transactions of a Revenue or Trading Nature and Proposed New Shareholders' Mandate for Additional Recurrent Related Party Transactions of a Revenue or Trading Nature

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

Quarterly rpt on consolidated results for the financial period ended 31/03/2024

OTHERSFINAL DIVIDEND

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

DISCLOSURE ON QUARTERLY PRODUCTION

Change in Boardroom - MR CHUNG KIN MUN

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

Change in Audit Committee - MR STEPHEN WAN YENG LEONG

Change in Audit Committee - TAN SRI DATUK SERI PANGLIMA SULONG BIN MATJERAIE

Change in Audit Committee - MR CHUNG KIN MUN

Change in Audit Committee - MADAM DEBORAH DEB-BIE CHOA

Quarterly rpt on consolidated results for the financial period ended 31/12/2023

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONSProposed Acquisition of Remaining 10% Shares in Firstview Development Sdn Bhd (Proposed Acquisition)

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONS (Amended Announcement)Proposed Acquisition of Remaining 10% Shares in Firstview Development Sdn Bhd (Proposed
Acquisition)

$SAB / 5134 (SOUTHERN ACIDS (M) BERHAD)

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS) : NON RELATED PARTY TRANSACTIONSProposed Acquisition of Remaining 10% Shares in Firstview Development Sdn Bhd (Proposed
Acquisition)

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

DISCLOSURE ON QUARTERLY PRODUCTION

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

Quarterly rpt on consolidated results for the financial period ended 30/09/2023

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

DISCLOSURE ON QUARTERLY PRODUCTION

MONTHLY PRODUCTION FIGURES (MINING / PLANTATION / TIMBER)

Change in Boardroom - MADAM DEBORAH DEB-BIE CHOA