In an open letter to Teckwah’s board, Jan Moermann, chief investment officer, and Havard Chi, Director and head of research at Quarz Capital write that Teckwah can raise its payout ratio to 80% and dividends to 3.15 cents which would give a much higher yield of 6.3%. Teckwah will continue to retain more than $40 million of net cash which is estimated to increase by around $5 million per year from free cash flow, the letter says. In FY2019, Techwah generated $19 million of free cash flow.
Activist investor Quarz Capital Management Asia has collected more than 6% of Teckwah Industrial Corp, according to an SGX filing dated Apr 14 this year. Almost 80% of Teckwah’s profit before tax is from its logistics business where it stores and moves items for companies such as Philips. A further 14% of PBT is from printing and packaging.
In FY2019, Techwah reported a profit after tax of $8.96 million, up 13.4% y-o-y. Its gearing ratio of 16.8% as at end-2019 was based on gross debt, and the company is in a net cash position as at Dec 31, 2019, to the tune of $21 million. For FY2019, Teckwah paid out 1.5 cents in dividends which translates into a payout ratio of 21%, and yield of 3% based on its last done price of 50 cents on July 27. Shares of Techwah are trading at a discount 0.79 times its net asset value of 63.4 cents.
