Encorp’s New Board Appointments Pique Interest

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Last week, the share price of Encorp Bhd, a loss-making company, surpassed 40 sen for the first time since May 2019. Since early September, when it was trading at 31.5 sen, the counter has gained more than 30%. Its market capitalisation was RM129.84 million at Friday’s close of 41 sen.

Market watchers attribute much of the excitement and increase in share price to the company’s recent appointment of three new directors — Mohd Ali Abd Karim (independent non-executive chairman), Lukman Abu Bakar (independent non-executive director), and Datuk Shireen Ann Zaharah Muhiudeen (independent non-executive director) (non-independent non-executive director).

Shireen’s appointment aroused the most concerns, as she is a nominee of the Federal Land Development Authority (FELDA), which owns 62.3 percent of Encorp.

Shireen was unavailable for comment. Despite this, market speculation suggests she will play a significant role in Encorp — despite her non-executive post — and monitor FELDA’s investment in the company.

“She is experienced; she serves on the FELDA board of directors; she formerly worked for a regulator; she has worked for some very good organisations, including a handful of banks… As a result, expectations are high for what she may be able to do at Encorp,” a market observer notes.

However, will her hiring be sufficient to reverse Encorp’s losses over the last four fiscal years, from 2017 to 2020? Can FELDA earn a profit on its investment in the company?

Encorp reported a net loss of RM3.7 million for the six months ended June on revenue of RM62.51 million. The company reported a net loss of RM23.66 million for the same time a year ago, on revenue of RM51.88 million.

RM43.34 million in cash and cash equivalents, and RM122.15 million in other investments.

Encorp’s short-term debt commitments was RM130.76 million, while its long-term debt totaled RM677.93 million. Finance charges totaled RM36.64 million during the last six months, while accumulated losses totaled RM61.3 million.

According to Encorp’s FY2020 annual report, its significant assets include the Strand Mall — a four-story retail mall in Kota Damansara valued at RM164 million — and Red Carpet Avenue, which consists of 29 terraced shopoffices along the Strand Mall’s side and is valued at RM136.69 million.

Encorp also owns 15 office suites and 518 parking spaces in Kota Damansara, which are valued at RM26.02 million, as well as 65 residential units, 16 retail spaces, and 316 parking spaces in Johor Baru, which are valued at RM56.54 million.

Its three apartments in Victoria Park, Western Australia, are assessed at RM14.78 million, while its 2.7-acre plot of land in North Lake Road, Cockburn Central, Western Australia, is valued at RM8.5 million.

Additionally, Encorp has properties worth around RM23.5 million in Shah Alam, Selangor.

The sluggish property market has increased scrutiny on FELDA’s stake in Encorp. FELDA’s wholly-owned property development arm Felda Investment Corp Sdn Bhd (FIC) purchased a 49.5 percent ownership in Encorp in May 2014 for RM1.55 per share, paying Sarawakian billionaire Tan Sri Mohd Effendi Norwawi RM239.72 million for the block of shares.

Following FIC’s acquisition, a required general offer was initiated. Apart from the RM1.55 per Encorp share offer, FIC also offered 55 sen per warrant and RM1.55 each redeemable convertible unsecured loan stock of the firm (RCULS).

It eventually acquired 72.27 percent of Encorp and paid out RM306.11 million in dividends.

FELDA’s share in Encorp is currently valued at just under RM80.8 million, based on Friday’s close of 41 sen, implying that the land development authority is sitting on a paper loss of more than RM225 million.

Only a month ago, market rumours circulated that FIC was attempting to sell its holding in Encorp but was asking for RM1 per share, which naturally did not stimulate interest in its offered block.

Published by Zack Baharum

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