Worst is over for S&F Capital after 7 years of losses. Led by new management & renewed business focus
anarchysons
Following seven years of losses, S&F Capital Bhd, formerly known as Leweko Resources Bhd, finally turned around for its recent second quarter earnings ended Dec 31, 2021.
While it was only a measly net profit of RM826,000 for the period, this was significant as the company has been loss making since 2014.
A restructuring and kitchen sinking exercise last year saw the company recognize an impairment of RM17.9mil for its financial year ended June 30, 2020.
At the same time, the company has also received approval from shareholders to diversify into the construction sector and carry out recurrent related party transactions.
Since then, the group has been awarded construction contracts.
To further strengthen its balance sheet, the group also completed a rights issue exercise which raised RM16.51mil at the end of 2020.
Its managing director and single largest shareholder Kor Beng participated in the rights issue and now holds a 57.24% as of Dec 29, 2020.
Kor owns the stake via his vehicle Rengit Capital Sdn Bhd.
Interestingly S & F Capital’s share price is trading below Kor’s entry price in 2019, when he bought a 50.47% stake in the company at 18 sen per share.
On March 8, 2021, the stock closed at 14.5 sen per share. At this price, the company has a market cap of only RM77.05mil.
On Jan 22, 2021, to mark its new chapter, Leweko officially changed its name to become S & F Capital Bhd.
(S&F Capital logo)
Restructuring quietly started in 2019
The restructuring and change in management within S&F Capital actually began since 2019.
For those who remember, Leweko initially started off in the business of manufacturing and sale of sawn and moulded timber.
A downtrend of revenue in the sawn and moulder timber segment has led the management to decide to dispose of its sawn and moulder timber segment in year 2017.
In June 2019, Kor Beng emerged as the controlling shareholder of S&F Capital and was then redesignated to on Oct 25, 2019.
His sons, Kor Yann Kae and Kor Yann Shiun were also appointed as non-independent executive directors on the same date.
Under Kor Beng, the turnaround path began.
Kor has more than 40 years of experience in the construction business.
Under him, an experienced new management team with a proven track record in constructing residential and commercial properties took charge of the company.
In addition, as part of its aim to expand its revenue base, the company proposed a diversification into the construction business in Nov 2019.
Following the venture, in just six months, S & F Capital was awarded with construction contracts worth RM40.7mil in the area of Semenyih and Shah Alam as at June 30, 2020.
The contracts are received from S & F Construction Sdn Bhd, which is owned by the Kor family.
New strategic shareholder and new projects coming
Coming from a very low base, S & F Capital Bhd appears to be silently preparing to undertake more projects, just in time to replenish its two completed construction projects.
After completing its rights issue in Dec 2020, the company has allocated about RM13 million or 79% of the fresh capital to fund existing and new construction projects as well as to acquire new land banks for property development.
S & F Capital guided in its latest results filing that it has been actively tendering for new construction projects.
It has also identified several strategic partners with established track record to jointly bid for bigger projects, allowing it to compete against other established construction players.
S & F Capital also said that it is looking to buy “commercially viable and sizeable land banks or development rights” located in Wilayah Persekutuan, Perak and Selangor.
“We may also explore entering into strategic partnerships with suitable partners to acquire and jointly develop these land banks or development rights,” it said.
With very little borrowings of RM37,000 on its balance sheet, S&F Capital has not much to worry about its ability to expand its operations. It also has enough room to take on more debt for further expansion, which would in turn grow its revenue base.
S&F Capital could fast-track its return to profitability, considering that its turnaround strategies may pick up pace this year in line with increased demand for properties.
The company’s path to turnaround began in the second half of 2019 after its current managing director Kor Beng emerged as the controlling shareholder in June that year.
The Edge has previously reported in Oct 2019 that the company expects “to be awarded construction jobs of up to RM100 million by the construction arm owned by its major shareholders”.
Meanwhile, in 2020, the company also acquired control of an associate with development lands approved for mixed development and shop lots.
Not only that, it has disposed of its precast concrete unit in 2020 to reduce its debt burden and to monetise its equity interest in the disposed subsidiary to strengthen its working capital position.
These developments would likely strengthen S&F Capital’s financial performance more significantly from 2021 onwards.
From a technical point of view, the stock has been trading above its upward sloping 20-day Moving Average, which is a good sign.
The support level of 13 sen has been tested successfully, this may provide a springboard for further increase.
Moving forward, the success of S&F Capital’s turnaround strategies would likely be reflected in the upcoming quarters as the company expands its order book and acquires new land banks.
Potential injection of new companies into S&F Capital as well as merger and acquisition activities may also be on the cards, given the company’s solid cash balance.
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