SCH-WA a tool to ride on new shareholders’ value
Alan Voon 
Plans are afoot for SCH Group to diversify into the downstream quarrying industry via MoUs inked with three other parties

THE share price of SCH Group Bhd hit a one-year high of 27.5 sen in early April, not long after the emergence of a new group of substantial shareholders. This came after co-founders and former directors Wong Sin Chin and Yeen Yoon Hin ceased to be substantial shareholders.

Led by low-profile businessman Tan Sri Koh Kin Lip and one of the founding brothers of Cocoa-
land Holdings Bhd, Liew Fook Meng, the new group collectively own more than 16% of the company, according to disclosures to Bursa Malaysia.

However, the share price failed to sustain the initial momentum and corrected substantially to as low as 18 sen in August before rising recently to close at 23 sen on Oct 17 while the company warrant SCH-WA closed at 13.5 sen.

SCH Group began its operations as a distributor and supplier of general industrial products for various industries. It chose to focus solely on supplying industrial products that are used in the quarrying industry such as jaw crushers, cone crushers, hydraulic crawler drills, rock tools, conveyor belts and impact springs from Japan, South Korea, China and India.

The group currently distributes its products to more than 500 domestic customers in the quarrying sector in Malaysia as well as Singapore, Indonesia, Thailand, Myanmar and Cambodia.

In the first three quarters of FYE8/17 ended on May 31, SCH Group posted a 9% gain in revenue to RM31.8 mil fom RM29.12 mil a year ago. However, its net profit fell 43% to RM1.16 mil from RM2.04 mil previously.

In the notes accompanying the quarterly report, SCH Group attributed the higher revenue to the sale of its asphalt mixing plant, a new business segment that the group has recently embarked on. However, the group suffered a substantially lower profit margin resulting in a sharp drop in profit.

Moving forward, the board remains optimistic over the future prospects of SCH Group given the various opportunities to maintain its growth trajectory with the anticipated rollout of the Kuala Lumpur-Singapore highspeed rail and East Coast Rail Link as well as the construction of the Tun Razak Exchange and Bandar Malaysia over the next two years.

In May, the SCH Group announced that it plans to diversify into the downstream quarrying industry through memoranda of understanding (MoUs) inked with three companies.

The purpose of the MoUs is to set forth the understanding between SCH Group and the parties regarding the exclusive collaboration on the excavation and removal, and subsequent distribution and sale of deposits.

SCH-WA is currently trading at a negligible premium of 2.2%. This may be attributed to the warrant being deep in-the-money.

Investors who are confident that the new substantial shareholders of the company will add value to the SCH Group can lower their entry cost by buying into SCH-WA.

If the mother share rises, SCH-WA is expected in theory to be able to provide an outperformance of 70% compared with the mother share based on effective gearing of 1.7 times.

The writer is CEO of Warrants Capital Sdn Bhd

This article first appeared in Focus Malaysia Issue 255.