Thursday, September 10, 2015

TPC Plus (TPC, 7176), will it be the phoenix rising from the ashes?

TPC Plus (TPC, 7176) is a high quality (mainly Grade A) egg producer in the poultry farming industry. It is based in Melaka and has been listed in Bursa Malaysia (KLSE) since 2003.

Among its range of products are TPC Lower Cholesterol eggs, TPC Omega eggs, TPC Organic Selenium eggs, TPC Golden Corn eggs, TPC Farm Fresh eggs, washed-sanitized-coated (WASACO) eggs, etc.

In spite of producing high quality products, its financial results were not so attractive, especially after 2006.

In 2010, London Biscuits (LONBISC, 7126) which is in the cake confectionery business whereby egg is a major raw material, acquired TPC by buying about 32% stake in TPC from its then executive chairman Yee Tiam Teck and managing director Jimmy E. Pian at the price of RM0.30 per share.

After that, LONBISC had made a voluntary takeover offer at RM0.30 per share for TPC, but the respond was not good. It ended up with 33.65% holding in TPC.

Shortly after that, LONBISC sold off all its egg business, comprised 23.29% of Lay Hong (LAYHONG, 9385) to QL Resources (QL, 7084) and this 33.65% of TPC to Huat Lai Resources (HUATLAI, 7141).

HUATLAI acquired the 33.65% stake of TPC from LONBISC at the price of about RM0.30 in 2011. After that, HUATLAI had made a conditional takeover offer at RM0.30 per share for TPC. It ended up with 51.05% holding in TPC in 2012, and TPC becomes a subsidiary of HUATLAI till today.

Since then, HUATLAI took over the management of TPC and replaced its board of directors with own management team. The managing director of HUATLAI, Mr. Lim Yeow Her is now also the managing director of TPC.

The management has undergone several restructuring exercises to strengthen the financial of TPC. We also see TPC expansion in production with new layer houses and pullet houses. The financial results of TPC gradually improves since HUATLAI's acquisition.

And the share price of TPC also gradually moves from the range of RM0.2x (when with LONBISC), to RM0.3x, and then to RM0.4x.

In February 2014, TPC was classified as a PN17 listed company after its auditors expressed concern over a net loss of RM4.1 million in the financial year ended 2013, and also took into account TPC’s shareholders equity as at 31 December 2013 was less than 50% of its issued capital.

Its share price dropped back to the range of RM0.2x immediately after the PN17 announcement, but gradually climbed back as seen in the chart above.

On 31 July 2015, TPC has obtained approval from Bursa Malaysia for its proposed regularization plan to uplift from PN17, which entails a proposed share premium reduction, proposed par value reduction, proposed rights issue with warrants, proposed capitalisation of amount owing to its holding company HUATLAI, as well as proposed amendments to its memorandum of association and articles of association.

TPC has called for an EGM to be held on 17 September 2015 to get shareholders nod on this proposal. Click here to read about the circular about this PN17 upliftment proposal.

Shareholders of TPC are proposed with Rights to purchase new TPC shares at the indicative price of RM0.20 per share on the basis of 3 Rights Shares for every 2 TPC shares held. For each of the 3 Rights Shares subscribed, the shareholders will get 2 free Warrants.

Under this proposal, TPC will be listing up to 180 million new shares for its proposed rights issue with warrants and proposed capitalization. Besides, a total of 80 million warrants with exercise price of RM0.20 will be issued pursuant to the proposed rights issue with warrants.

The proceeds to be raised from the proposed rights issue with warrants will be utilized by TPC for the purchase of layer houses, pullet houses,  equipment, working capital and expenses in relation to the proposed regularization plan.

TPC currently has 80 millions issued share listed in Bursa Malaysia. As reported in TPC Annual Report 2014, HUATLAI currently holds 52.91% stake in TPC. Only 54 shareholders own more than 100,000 shares in TPC after HUATLAI, which is equilvalent to 31.53%. About thousand over shareholders hold the remaining 15.56%.

As of today 10 September 2015, TPC share price closed at RM0.525. Its trailing 4 quarters EPS stood at 6.07sen, forming a PE ratio of 8.65. This is calculated based on its existing 80 million issued shares.

After the rights issue, its number of shares will immediately become 260 million, not accounting the 80 million warrants convertible to shares at the price of RM0.20. Not accounting for the result of share premium reduction and the proceed from rights subscription, its adjusted EPS will be 1.87sen. If taken those proceeds into account, the EPS figure will be higher.

TPC needs to maintain 2 consecutive quarters of operational profit in order to get upliftment from PN17. Will TPC be the phoenix rising from the ashes? Let's see.

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.


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