KUALA LUMPUR (BLOOMBERG) - It's South-east Asia's best-performing stock and has returned almost 400 per cent to investors in three years. Yet, Malaysia's Hap Seng Consolidated Bhd has flown under many people's radars.
The property, plantation and building-materials conglomerate controlled by Lau Cho Kun has managed to double its after-tax profit over the last four years amid falling palm oil prices and a real-estate market that's slowed since 2014. Similar-sized firms like Thailand's Indorama Ventures PCL and PT Charoen Pokhphand Indonesia have a dozen or more analysts covering them, while Hap Seng, Malaysia's 23rd-biggest company, hasn't been tracked since 2012.
"If you look at the culture of our company, we don't really like to shout and tell everybody how great we are," managing director Edward Lee said in an interview in his office in Kuala Lumpur. "We want to deliver results."
Hap Seng, which means unity and success, has its roots in a small shop set up by its founder Lau Gek Poh, who migrated from China to Sabah on Borneo island in the 1930s. It's turned vertical integration into an art form, getting into fertiliser to complement its palm oil operations for example, and has grown via US$358 million (S$492.4 million) of acquisitions since 2000. It's now looking to ramp up purchases as it takes advantage of its rising share price.
"The biggest opportunity right now is to acquire good assets, whether it's plantations or property," said Lee, who has RM600 million (S$199 million) of cash on hand for purchases. "If you grow your business organically it will take some time, whereas when there's good companies we can acquire, the gestation period will be a lot shorter."
Hap Seng has surged 55 per cent over the past 12 months, the most among the 157-member MSCI South East Asia Index, compared with a 6.7 per cent decline in the FTSE Bursa Malaysia KLCI Index. It's returned 396 per cent to investors including dividends in the last three years and reported an after-tax profit of RM908 million in 2015, from RM753 million the year before. Hap Seng rose 0.1 per cent to RM7.79 as of 9.19am in Kuala Lumpur.
Mr Lau, the low-profile nephew of the late founder, owns 74 per cent of the company. He's the seventh-richest Malaysian and is worth US$1.62 billion, according to Forbes Magazine.
About half of last year's operating profit came from its property business, 17 per cent from palm oil and around the same proportion from credit financing. Hap Seng also owns quarries, has building supplies and fertilizer companies, a trading division and runs seven Mercedes-Benz dealerships. All of its plantations are in Sabah, on the northern tip of Borneo, as is much of its property holdings.
Hap Seng's share price has more than quadrupled since the end of 2012 and it's price-to-earnings ratio is now 17.9, compared with a five-year average of 11.3. The stock is priced at 3.9 times its net assets, more than double the MSCI South East Asia Index.
There's no compelling reason to initiate coverage because it's "too expensive," said Vincent Khoo, who last tracked the stock in 2008 when he was head of research at Maybank Investment Bank Bhd. He's now head of research at UOB-Kay Hian Holdings. The company has a strong share buyback programme and that's probably contributed to its performance, Pong Teng Siew, head of research at Inter-Pacific Research in Kuala Lumpur, said in an interview in February.
Wilson Szeto, a former telecommunications executive who bought 3,000 Hap Seng shares around three years ago, said it's one of the best decisions he's ever made.
"There's nothing better than a good company that's below the radar," he said while waiting in the buffet line after the company's annual general meeting in Kuala Lumpur last month. "When you do your homework, you'll find the gems."
Hap Seng's share price has surged even as the price of palm oil fell from a high of around RM4,000 a ton in February 2011 to less than of that by last August. The Bursa Malaysia Property Index has declined 25 per cent from a 17-year peak in August 2014.
Hap Seng's earnings rose 26 per cent in the first quarter from a year earlier, buoyed by property sales and strong performances from its fertilizer, trading, automotive, credit financing and building materials divisions, according to the company's financial results. This year will be tough as weak demand for palm oil from China will persist and the property market is equally challenging, managing director Lee said in a May 19 statement.
The company is focused on expansion and the gains in its share price over the past year have created a chance to sell more equity to fund acquisitions, he said in the interview, declining to give further details.
"We may not have been too aggressive in the past," said Lee. "Going forward, if there are good opportunities, we would like to grow."