Change of strategy on the cards for HEXZA (3298) Hexza Corp Bhd.?
Hexza’s executive chairman Datuk Foong Wei Sum is 80, while director Foong Weng Cheong is 86. Collectively they own 31.7% of Hexza via Summit Holdings Sdn Bhd and small individual stakes.
PETALING JAYA: Management changes appear to be taking place in Hexza Corp Bhd.
While on the surface it appears to be a case of the new generation taking over the reins from the old, this breed of new blood in Hexza don’t seem to be taking over simply because they share the same surname.
Controlled by the Foong family, Hexza is a yesteryear low profile company that probably does not excite the investment community.
That may be about to change.
Since last October, children of the Foong family have been appointed to the board of the company.
While the appointments of the third generation is likely due to the old age of the founders and major shareholders of Hexza, the qualifications and skill sets of the Foong children would indicate that it isn’t simply a case of business as usual.
The Foong children have stellar credentials and work experience to put it modestly.
Having worked in places such as Morgan Stanley and Goldman Sachs in New York and Hong Kong, would the brilliant younger Foongs be happy to simply ride along on a company manufacturing ethanol with a market capitalisation of RM183mil with a paltry profit margin of some 7.3%?
Hexza’s executive chairman Datuk Foong Wei Sum is 80, while director Foong Weng Cheong is 86.
Collectively they own 31.7% of Hexza via Summit Holdings Sdn Bhd and small individual stakes.
At their advanced age, it is understood that they have taken a backseat and have no plans to expand the business.
For now though, Hexza is involved in the manufacture and sale of ethanol and formaldehyde-based adhesive resins.
It is the largest producer of ethanol in Malaysia.
Hexza also has a property arm via Summit Development Corporation Sdn Bhd, which has developments in Ipoh.
Perhaps a change in strategy is on the cards.
New blood
The first appointment took place on Oct 31,2019.
Aureole Foong Leong Wei 58, was appointed chief executive officer of the company.
He is the son of Weng Cheong, and nephew to Weng Sum.
Aureole has an investment and research background, along with a Masters from University of Southern California, Los Angeles, Marshall School of Business.
He has worked in companies such as Morgan Stanley Inc, Peregrine Asset Management Inc and Hansberger Global Investors Inc among others.
Then on Dec 31, Foong Leon Ie 42, was appointed as a non independent non executive director of the company.
She is the daughter to Weng Sum and niece to Weng Cheong.
She has a Masters in engineering and economics from the University of Oxford, where she not only graduated with a First Class Honours, but was also top student for the course.
She also has an MBA from Harvard Business School, where she was a Fulbright Scholar.
Work wise, Leon Ie has mostly been partner and an investment analyst in Hong Kong. She is presently partner and in the investment committee of Overlook Investments Ltd HK.
Lastly on Jan 3, Foong Leon Chiew 40, was appointed as alternate director of Hezxa.
He is the younger brother to Leon Ie.
Among his credentials, he has en engineering and Masters degree from Oxford, the latter which he was offered the Newman scholarship for finishing at the top 5% of his class.
Work wise, he has been with Goldman Sachs Hong Kong and Deutsch Bank Hong Kong from 2011 to present.
Now whether or not the younger Foongs are responsible, the cash flow position of the company has certainly improved since their emergence.
Hexza’s operating cashflow turned positive to RM11.6mil for the six months to Dec 31,2019, compared to (RM310,000) in the previous year.
It is expected to increase even further due to the strong demand for ethanol.
For Hexza’s second quarter to Dec 31,2019, the company recorded an almost unchanged net profit of RM1.37mil on the back of a 28% drop in revenue to RM19.48mil.
For the six-month period, net profit increase to RM3.77mil from RM3.4mil in the same period of the previous period.
Revenue dropped 21% to RM43.65mil.
A short term catalyst may be that demand for ethanol has certainly risen thanks to the need for more hand sanitisers over the last few months.
While the price of ethanol is generally maintained at RM4.90 per kilogram, the sudden surge in demand as seen its average selling price increase between RM6 to RM9.
Furthermore, while Hexza manufactures ethanol for industrial chemicals, it also manufactures food grade ethanol that commands a premium of 30% to 50% against industrial ethanol.
Food grade ethanol are sold to pharmaceutical, food and beverage industry. About 50% of Hexza’s ethanol are food grade.
M&A on the cards?
As of Dec 31,2019, Hexza has cash of RM62.1mil and RM99mil investments in quoted securities which translates to roughly 80sen per share. Of its RM99mil investments, it is sitting on unrealised gains of some RM12.7mil.
From 2014 to 2017, it has been paying 4.5 sen dividends per annum. From 2015 to 2019, it has been paying 5sen per annum.
At 5 sen a share, that roughly translates to a 5% dividend yield.
With stronger operating earnings expected in 2020, there is a possibility that it may increase its dividend payout.
Meanwhile, the company appears to be on the lookout for investment opportunities.
In its 2019 annual report, the company said that with a healthy cash level ready to be deployed for investment purposes, it is looking for the best investment through a comprehensive and thorough evaluation of mergers and acquisitions to diversify our earnings base.
https://www.thestar.com.my/business/business-news/2020/05/04/change-of-strategy-on-the-cards-for-hexza
