Mamee-Double Decker back in the public eye

TheEdge Wed, Dec 18, 2019 03:00pm - 1 year ago

IT looks like a win-win situation. Financially ailing candy maker Khee San Bhd seems to have found a white knight in snack food maker Mamee-Double Decker (M) Sdn Bhd while for the latter, taking up 45.11% of the former’s shares in a private placement could mean a comeback to Bursa Malaysia.

Mamee — which will assume control of Khee San after the proposed share purchase and be obligated to make a mandatory general offer for the remaining shares it does not own — plans to keep the candy maker’s listing status upon the completion of the MGO.

News that Mamee was coming to Khee San’s rescue caused a stir on the market. The latter’s share price rose from 27 sen recorded on Nov 26 to close at 48 sen last Thursday, giving the company a market capitalisation of RM54.9 million.

Best known for its noodles that are not cooked but crushed into snack bites, Mamee was founded by Datuk Pang Chin Hin. It was taken private by the family in 2012.

Currently, Pang sits on the company’s board as its executive chairman while his sons, Tan Sri Pang Tee Chew and Datuk Wira Pang Tee Nam, run the business as group CEO and group chief operating officer respectively.

The company was listed on Bursa in the 1990s until it announced a selective capital repayment in 2011. The stock was trading at 12 times its price-earnings ratio (PER) at the time compared with the average 15 times the valuation of the broader market then.

The offer price for the privatisation was RM4.39, which was at a 21.9% premium to Mamee’s last traded price of RM3.60. By 2012, Mamee had been taken private and delisted from the stock exchange.

Market observers say the company was privatised because its major shareholders felt its stock was undervalued. In fact, Mamee was delivering impressive earnings during the last few years of its listing. Its net profit more than tripled from RM14 million in its financial year ended Dec 31, 2007 (FY2007), to RM42.8 million on revenue of RM482.54 million in FY2010.

Post-privatisation, Mamee continued to grow in terms of revenue and net profit. Based on a company search, it posted a net profit of RM28.85 million in FY2018, up 10.3% from RM26.16 million in FY2014 while revenue grew 25.8% to RM767.34 million from RM609.78 million in the same period.

However, there was a blip in earnings in FY2018, when net profit fell 26.11% from RM39.04 million in FY2017 on revenue that shrank 3.2% from RM792.97 million. Its profit margin also slid to 3.76% in FY2018 from 4.92% in FY2017.

Should Mamee relist on Bursa, will it get the valuation it deserves from investors this time around?

One of its peers on the exchange would be the Melaka-based Oriental Food Industries Holdings Bhd. But in terms of revenue and net profit, Oriental is smaller than Mamee. It posted a net profit of RM14.22 million on revenue of RM286.54 million in its financial year ended March 31, 2019. However, its net profit margin came in higher than Mamee’s, at 5%.

From a valuation standpoint, Oriental was trading at 13 times its PER based on its closing price of 69 sen last Thursday. This gave the company a market capitalisation of RM165.6 million.

That said, it is not certain yet that Mamee will take a controlling stake in Khee San. The latter still needs to get the green light from regulators and shareholders because of its behemoth private placement proposal that involves 94 million new shares, which is equivalent to 45.11% of the company’s total enlarged share capital.

The second part of the proposal will see a renounceable rights issue of 208.4 million new shares on the basis of one rights share for every existing Khee San share.

The proposal will cost Mamee a total of RM61.01 million. Some RM45 million of the proceeds received will be used to repay part of Khee San’s outstanding debt owed to creditors and financial institutions, which amounted to RM125.5 million as at Sept 30, 2019.

After repaying RM45 million, Khee San’s gearing will drop to 0.31 times from 0.64 times as at Dec 31, 2018.

As the candy maker looks set to receive a new controlling shareholder on its board, financially distressed London Biscuits Bhd, which was its largest shareholder, has exited the company. Filings with Bursa show that London Biscuits disposed of its entire 20.8 million shares, or a 20% stake, in Khee San on the open market on Nov 29, shortly before the private placement was proposed on Dec 2.

While London Biscuits is no longer a shareholder of Khee San, its former CEO, Datuk Seri Liew Yew Chung, still holds a direct 6.27% stake in the candy maker.

The Liew family, through its private vehicle Meileelanusa Sdn Bhd, was the largest shareholder of London Biscuits until recently when Sydney-based MembersOne Ventures Fund acquired a substantial 11.35% of the company.

In its third quarter ended Sept 30, 2019, Khee San reported a net loss of RM44.65 million on revenue of RM18.54 million. No comparative figures are available as the company changed its financial year end from June 30 to Dec 31.


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