Tek Seng - What Now?

Tek Seng - What Now?

For several weeks, the usually very quiet hardly traded stock, Tek Seng Holdings Berhad has been gaining momentum in terms of trading volume and rising share price. At first, my instinct told me that something was brewing at Tek Seng. Something was going on. When it released its 2nd Qtr results with an earning per share of 4 sen plus, I thought that was the main reason.

But no, that wasn't the main reason. Tek Seng continued its rally again and again with the rare occasion of the share price pulling back by just a little bit. Then it surged a few more sen again. Finally, it dawned to us that the massive interest for Tek Seng was because due to an announcement on Bursa Malaysia on Sept 11. (Note that on that day, Bursa Securities issued an Unusual Market Activity (UMA) query regarding the recent rise in price and volume of Tek Seng's shares).

The announcement was a Memorandum of Understanding (MOU) between Tek Seng and Solartech Energy Corp (SEC). SEC is a public listed company listed on Taiwan Stock Exchange. Established in 2005, SEC is the pioneers in the solar PV industry and is principally engaged in the manufacturing of solar cells such as multi-crystalline and mono-crystalline solar cells, solar modules and systems.

Both parties are going to negotiate to form a strategic alliance whereby SEC is proposing to invest up to RM100 million in TS Solartech Sdn Bhd (Tek Seng holds 86.1 %, the other balance is not known although Kassim would like to believe that most probably, SEC holds the other 13.9 %).

Now why is it suddenly that SEC is keen to increase its participation in TS Solartech Sdn Bhd? There must be several reasons.

One of it must be the eventual potential rising business for the solar power business. Being the main suppliers, it would be foolish to see the other 86.1 % holder reaping massive profits should the solar power business kicks off. Why not buy up or increase the stakes while the solar business is still so so? SEC must be seeing more than us in the solar business. Hence, the willingness to increase their participation.

Secondly, I believe that by having the majority stakes, SEC would be having management control of TS Solartech Sdn Bhd. It is easier to make decisions when you hold the upper hand in any company.

Thirdly, there is the possibility that through TS Solartech, the company would stand to reap possible potential business revenue should it expands beyond Malaysia's market, i.e. the South-East Asian market. After all, Kassim believes that not many companies are in the solar business in Malaysia.

To know whether how the solar business will be in the future, take no further than across the causeway. We all know our "kiasu" or "scared to lose" Singaporean neighbours. When their government plans something, it is not for the next few years, but for the next ten or even twenty years ahead. One of its massive projects, the Mass Rapid Transit system (MRT) commenced with its planning in the 1960s with the aim of meeting the rise in transportation demands not in the next few years, but for the next twenty and thirty years later!

So it came not as a surprise when the Singapore government is looking at solar usage as the one future power supply. The Focus Malaysia reported this recently.

Ever since the MOU's news was out, the share price of Tek Seng has persistently stayed at the 80 sen plus level until late last week.  It has since then consolidated at 75 sen plus, suggesting that there should be few losers since the start of the great Tek Seng rally from its low of 27 sen done on Oct 7, 2013. Since the beginning of Aug 2014, the rally started aggressively.

Each time there was a several sen up rally, the pullback was the one or two sen only. Such more rally up and less pullback pattern resulted in the share price touching a high of 88.5 sen.

During the great rally, the record massive trading volume also indicated that many types of investors had joined the wagon. There must be thousand of short-term speculators and contra players and also new long term investors. As such, the current 75 sen level must be seeing new group of long/short term investors entering into the foray now.

Should the MOU be successful and comes into fruition, what is the next playing field for investors? For one, investors need to read how the details and terms of the MOU turns out to be. It will have a massive bearing on the share price of Tek Seng. Should Tek Seng be seem as one of the big beneficiary following the successful MOU, the share price of Tek Seng will definitely resumes its rally again.

What it the MOU doesn't turn out to be successful and lapse as both sides do not agree with their respective terms and conditions? I foresee new selling pressure on Tek Seng as there will be investors ditching the company. But my experience also told me that Tek Seng would not drop back to its 27 sen level since Oct 2013.

The whole episode has already helped to enhance the business profile of Tek Seng into the limelight. The Tek Seng of today is not the same as the Tek Seng of yesterday. Tek Seng today is a much different animal now, especially with the great potential future business in solar. Furthermore, the other existing divisions are also in the black most of the times, albeit sometimes a bit of profits.

Kassim believed that Tek Seng's great rally is a convergence of several happenings that followed events along the way. The first was its impressive 2nd Qtr 2014 results of 4 sen plus. The second was the announcement of the MOU. The third was perhaps the news that the Singapore government is looking at the solar usage. The action and intention of the Singapore government has created an awareness of the future of solar. Hopefully, the fourth would be a final successful MOU which will see an signing agreement between Tek Seng and SEC that would see Tek Seng as one of the main beneficiary.

Taiwan Sec is very likely to achieve a successful deal with Tek Seng as (according to a report) U.S. had imposed heavy anti dumping tax (35.89%) on Taiwan solar exports recently, resulting in a major drawback in sales as customers from U.S. are worried about the inflated pricing. As a result several Taiwanese firms have expressed interest in opening/ investing in plants overseas.

Should the last happens, investors would be warned to advise to fasten your seat belts and witness another round of rally between long term investors vs short term and contra players in the Tek Seng saga.

From the email :

Tiong Yong Soon in his email immediately after reading my post : Every "Seng" has its day, commented : Today is a hot day for Tek Seng. It is another year high!  More to come?

Well, as we all know, the Tek Seng's rally continued to dumbfound us again and again!

A big thank you to you, Shee Leong Liew for emailing to me to explain what YSP stands for. For the benefits of all YSP Sah shareholders, YSP stands for Yung Shin Pharmaceutical Industry Co. Ltd; name of its mother company in Taiwan.