Thursday, November 16, 2006

Investors & minority shareholders unhappy about Teoh brothers

In my previous post I told about the name change from Kumpulan Emas to Eco First, and about how investors are unhappy about the Teoh brothers who together are involved in Eco First and Meda Inc, and whose mismanagement led to severe losses and finally the sellout of Salcon. They also lost a furniture making company but I didnt know about that until now.

Here is the newspaper report:

The Star Online: What’s in store for EcoFirst with new MD
The Star Online > Bizweek
Saturday February 25, 2006
What’s in store for EcoFirst with new MD
FOR a company whose market capitalisation has been more than halved since the start of last year, any major change usually brings hope to its minority shareholders. So it was for EcoFirst Consolidated Bhd when Datuk Clement Hii had recently bought a substantial stake and later became its group managing director. Hii's appointment on Jan 27 was part of a boardroom revamp that also included former academician Tan Sri Dr Syed Jalaludin Syed Salim taking over from Datuk Patrick Teoh Seng Foo as chairman. The latter is now the deputy chairman but retains his executive directorate. Before that, there was a name switch. This explains why, or some people, EcoFirst does not ring a bell.

The stock had been trading as Kumpulan Emas Bhd until Jan 20.
Seng Foo has been replaced as chairman of EcoFirst and is now now the deputy chairman.

However, the bigger changes at EcoFirst are still ahead. For one thing, the diversified group – it has interests in oil palm plantations, property, education and manufacturing – intends to venture into new fields. Biotechnology is one area.

The idea is to ride the government's push to build up the industry via the National Biotechnology Policy, which was unveiled last April. EcoFirst's immediate plan is to tie up with some Indian companies to produce herbal products for the domestic and foreign markets.

Says Hii, “The main thing is to focus on core businesses that will bring in money. The problem with EcoFirst is that it doesn't have a core business that generates a steady stream of income.”

This absence of sturdy anchor activities has led to losses in financial years 2004 and 2005. To make things worse, EcoFirst had to part with some valuable assets last year to lighten its debt burden. The disposals were done at depressed prices and resulted in EcoFirst relinquishing control of two listed companies, water engineering specialist Salcon Bhd and furniture manufacturer SYF Resources Bhd. It also reduced its stake in property player Meda Inc Bhd.
(Another listed company in the EcoFirst stable is education provider SEG International Bhd, or SEGi. EcoFirst has almost 26% equity interest in SEGi. Hii is also the chief executive officer of SEGi.)

At the start of 2005, EcoFirst (then still known as Kumpulan Emas) was trading at 27 sen. The shares are now just a little above the 10-sen mark. It's the kind of performance that frustrates shareholders, and there are many EcoFirst minority shareholders out there. It is a counter that has always had a strong retail following.

As at Dec 31, 86% of its share capital was in the hands of almost 36,000 shareholders. Its 30 largest shareholders accounted for only 34%.
Apart from Hii, the only substantial shareholders are Patrick and his brothers, Seng Kian and Seng Aun. The brothers' combined stake is about 12%.

New directions for EcoFirst
Since Hii only bought his 5% stake in November, the minority shareholders' displeasure was mainly aimed at the Teoh brothers. It is understood that this dissatisfaction bubbled to the surface at the company's annual general meeting on Dec 30, with shareholders demanding answers as to why the company has fared poorly. Such sentiments have also sparked speculation that the Teoh brothers are ready to leave the company. Says a corporate observer, “I think they're just tired of it all – the huge effort required to try to turn things around, and the growing criticism.”

Naturally, Hii's emergence as a substantial shareholder has stoked the rumour mill. He says he invested in EcoFirst because he believes that its diversified business base offers a lot of room for growth. He hints that he will increase his stake, either through acquisitions in the open market or via option agreements with the existing shareholders.

Hii says he invested in EcoFirst because he believes that its diversified business base offers a lot of room for growth. “In any case, EcoFirst has an attractive valuation, at the current market price. So, there is great upside potential. It's a matter of doing a few right things and putting a few things right,” he adds.

“There'll be a major revamp of our management systems and style, and we will pursue greater operational efficiency for our existing businesses. And we will aggressively pursue business developments in new fields.” He points out that there are many avenues to maximise the potential of the company's existing businesses. For example, the plantation division can be a major money-spinner because palm oil prices in India are higher due to the tariffs that shield the local industry. Subsidiary PalmTech India Ltd has a concession for contract farming with local landowners, who collectively own more than 280,000 hectares (ha). However, only 10,000 ha have been planted over the past five years. “To me, that shows not enough emphasis has been given to oil palm,” says Hii.

He adds that EcoFirst is talking to provincial governments in India to get new additional concession areas, not just for oil palm, but also to cultivate other cash crops and herbal plants (such as vanilla, aloe vera and jatropha, whose oil can be used to make biodiesel) for the export market. In addition, there are plans to transfer to Malaysia the expertise of the Indian biotechnology partners. EcoFirst has initiated discussions with Malaysian landowners on possible joint ventures for large-scale farming and processing of herbal products.

Are the Teoh brothers in or out?
Such plans may well be a reason for optimism, but some observers say investors are equally interested to know if the Teoh brothers will continue to be involved in EcoFirst.

When asked about the talk that they are exiting the company, Patrick says, “Who told you that? We are still substantial shareholders. We'll each have our role. Datuk Clement will run the company, while my role is more at the board level. “It's just like how it was at SEGi. We don't want to meddle in the operations of the company. It's a move towards separating the ownership from the management of the company. That's the way it should be. Look at Salcon, although there has been an ownership change, the management is still in place.”

Hii recognises that the negative perception about EcoFirst is linked to how people feel about the Teoh brothers' handling of the listed companies in the group. He, however, insists that in the four and a half years that he has run SEGi, the brothers have seldom interfered in management and operational matters. The question of whether the Teoh brothers will stay on at EcoFirst may become irrelevant if Hii stamps his mark at the company.

Those who know him from when he was appointed as SEGi CEO say he is decisive and hands-on. A former senior journalist, Hii had ventured into the education business and became the SEGi boss in 2001 after it had acquired his Kuching-based institute. “He is a fast learner, and at SEGi, he has picked up a lot about the corporate world. He's a good choice for EcoFirst,” says a CEO of a listed company who is familiar with the EcoFirst group.

There is the worry that Hii may be spreading himself thin by leading both EcoFirst and SEGi. He maintains that he can do well at both jobs, with the support of the management teams of both companies.

“I continue to be involved in SEGi because education is a personal passion as well as a professional pursuit. Over the past few years, my team and I have embarked on various ambitious projects to move SEGi forward. We are moving into new market segments and we are beginning to show results despite some initial setbacks.

“I am determined to ensure that these projects are realised and that they bear fruit in due course.” Another challenge is that Hii has to demonstrate that his strength is not just in education, and that he can run a diversified company.
He says, “I have been in business for over 20 years. I hope people see me as an entrepreneur, an enterprise builder. I believe that whatever business we're in, innovation is the key to success.”

In any case, it may not be a long wait to see if Hii has what it takes to restore confidence in EcoFirst. “I don't expect a long honeymoon for my management team and me. We have to add value to our current businesses and bring in new core businesses to generate a steady stream of revenue,” he adds. “We have to move fast. We give ourselves a maximum of two years to show some positive tangible results. But we should within a few months, and not a few years, make significant progress in developing new businesses.”

Click on the following links to read The Star report:
The Star Online: What’s in store for EcoFirst with new MD
ECOFIRS : [Stock Watch] [News]
© 1995-2005 Star Publications (Malaysia) Bhd (Co No 10894-D)

You may also click on the following jpeg files to report the report:
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