Top S-E Asian stock that's returned nearly 400% stays under the radar

Kuala Lumpur

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, Malay-sia'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. "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 in the 1930s. It has 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 of acquisitions since 2000. It is 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 Mr 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 are 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 6.4 per cent decline in the FTSE Bursa Malaysia KLCI Index. It has 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 closed unchanged at RM7.78 on Friday, trading near a record high of RM7.85 reached on May 20.

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 fertiliser 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 its 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 Ltd. 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 Sdn in Kuala Lumpur, said 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 after the compa-ny's annual general meeting in Kuala Lumpur last month. "When you do your homework, you'll find the gems." Bloomberg