Harrisons - The Kingpin of East Malaysia

Harrisons - The Kingpin

of East Malaysia

What do DKSH Holdings (M) Bhd, Harrisons Holdings (M) Bhd and Yee Lee Corporation Bhd have one thing in common?

They are agencies and distribution companies dealing in products produced by all those multi-nationals companies in Malaysia and to a certain extend, from other parts of the world. You produce your goods and sell it to them and they sell it for you for a profit margin. I called them “distribution houses” or “agency houses”.

In simple term to understand, here is how it works. A big manufacturer for examples Nestles produces its products and sells it to one distribution house to sell. Nestles will only has to collect just one cheque payment from this distribution house. Then this distribution house sells its products to different dealers for a profit margin. How this distribution house deals with its so many different dealers regarding payments has nothing to do with Nestles anymore.

That is why if you are a big manufacturer of many products, it is better to engage out to some reputable distribution companies. It saves you a tremendous amount of time and cost for dealing out with so many dealers, not to mention collection of payment as well.

Of late and especially during since the last one year, there has been a good rally for this sector. Two distribution house companies, DKSH and Yee Lee have seen their share price appreciating to new highs, much to the delights of their shareholders.

DKSH must be  one of the few new darlings of Bursa Malaysia for its share price has risen tremendously from a 52-week low of RM3.26 to a 52-week high of RM9.20. At the time of posting, DKSH closed at RM8.39.

Yee Lee on the other hand might not be so spectacular as DKSH, but nevertheless, its share price has also risen from a 52-week low of RM84.5 to a 52-week high of RM1.82. At the time of posting, Yee Lee closed at RM1.81.

Why did investors chase after the shares of these two companies that sent the share price shooting into the sky? The reason is consistent, reasonable and gradual growing profits. Quarterly  and quarterly of reporting improving profits attracted more and more investors to buy up the shares.

DKSH for one has actually seen its quarterly profits rising steadily  whereas Yee Lee is also appreciated for its stakes in its associates listed profitable company Spritzer in the consumer section. This rally however was not “participated” by Harrisons because Harrisons was still trying to sort out its taxes issue with Kastam DiRaja Malaysia since early Feb, 2012. Harrisons has seen its shares price hardly moving neither here or there or anywhere during the last one year. Its traded at between its 52-week low of RM2.79 to a 52-week high of RM3.40 until April 4, 2014 when it announced that its taxes issue has been settled after the closing market. Harrisons closed at RM3.09 on that day.

Since that announcement (supposedly to be good news for Harrisons shareholders), Harrisons has seen its share price doing some “catching up” with its competitors to even touch a high of RM3.51 although it eventually closed at RM3.38 on April 11 at the time of posting.

Will there be more rooms for Harrisons to move up?

I know a few good things about Harrisons. After all, I have been a Harrisons shareholder since 2004! Let me share it with you.

Still Strong Financial Position

The 2012 Annual Report stated that Harrisons’ has RM92 million vs Borrowings of RM65 million while trade and other receivables is RM229 million vs trade and other payables of RM154 million. (The 2013 Annual Report is not yet out). Based on this, Harrisons will still be in a healthy financial position even after settling its taxes with Kastam DiRaja Malaysia.

Strong Profit and Earning Per Share

Harrisons’ profit for Year 2013 was RM28 million. For a company with a share base of only 68,489,200 shares, it was an earning per share of 41.42 sen! How many companies in Bursa Malaysia earned that kind of eps? Flashback back one year earlier and you will be shocked to learn that in 2011, Harrisons made RM35 million. That was an earning per share of 52 sen! Incidentally, after I started to invest in Harrisons in 2004, Harrisons continued to post higher and higher record profits until 2011. Since then, its profit have softened down, but that is expected after a spectacular run of record earnings for so many years.

Strong Dividends Payout

Harrisons has never failed to pay out dividends since the last decade. Its dividends payment kept on increasing gradually in tandem with its rising profits, especially during the last ten years. There was even a final dividend and a special dividend totalling RM700 for financial year 2011. At the moment of posting, the dividends for Financial year 2013 has yet to be announced.

Strong in East Malaysia

Harrisons is very strong in the East Malaysia. In fact, it holds the monopoly market in East Malaysia. Harrisons has been in the East Malaysia market for so many years that it is unlikely another distribution house would want to go over there and spend considerable huge amount of cost i.e. the engagement of staff, warehousing and other resources to cover such a wide geographical reach in East Malaysia just to challenge its business. I would rate Harrisons as the “Kingpin” of East Malaysia and DKSH as the “Kingpin” of West Malaysia. Surely there must be a GOOD premium  TO BE ACCORDED FOR HARRISONS SHARES DUE TO its stronghold alone in East Malaysia!

Expanding into West Malaysia

Since securing the Coca-Cola agency, Harrisons has also gradually expanded into West Malaysia in Batu Pahat,  Muar and Penang. The expansion into West Malaysia will need some time to turn into an additional profitable investment.

Tightly held by its 30 largest shareholders

Harrisons shares are tightly held by its 30 largest shareholders. The 2012 Annual Report revealed that together, the 30 largest shareholders held up to 81.16%. That means there are not much shares left in the open market. The largest shareholders, Bumi Raya International Holding Company Limited, collectively hold about 28 millions shares or about 40%. There were also two unsuccessful attempts to take Harrisons private in 2008, but to no avail.

Kassim - The early bird again!

Kassim first came to know about Harrisons as early as in the year 2004. Attracted by its simple and easy way to understand how it runs its business, Kassim confidently bought 10,000 shares of Harrisons on Dec 7, 2004 at RM1.35. Kassim has been holding on to his stakes until today and has been rewarded with a total dividends of RM15,350.00 (dividends received since the purchase’s date until today) which is more than the RM13,630.60 (purchase price plus broker’s fee).

Thus, Kassim is already sitting on a realised cash gain of RM1,719.40 plus the current 10,000 shares of Harrisons which are considered as FREE!

In view of the unmoving share prices of Harrisons since more than a year and especially the tremendous surging shares price of its two competitors, Kassim believed it will be a matter of time before investors start to appreciate this profitable and good paying dividend stock when the taxes issue was settled eventually.

Coincidentally again, the settlement of the taxes issues announcement came after the closing market on April 4. Kassim had bought ADDITIONAL 3,000 shares of Harrisons at RM3.08 on that very day. Although I already owned 10,000 shares of Harrisons. I still believe that there will be at least some uptrends for the share price for this “hardly-moving” stock in times to come, thus I decided to increase my “business participations”.

Even if Harrisons does not move, at least it is still strongly supported by its consistent profitable business which ensures that regular good dividends are delivered to the patient shareholders.

(Please be advised that if you are going to buy Harrisons share after reading this article, you are doing it so at your own risk. But then again, there is no such thing as a “free lunch” in the investment world. Every time, we invest in Bursa Malaysia, we are doing so with a certain degree of risk, like it or not).

One question from OS on April 1 about : Any stocks with high growth and high dividend? That’s the ideal situation.

Kassim’s view is that you must be the early bird to invest. If not, by the time everyone spots it, the stock will become expensive. Buy when it is earning just the average profits consistently with consistent dividends and wait patiently ... just as I did with Fimacor and well ... Harrisons again! Join me, OS?