KUALA LUMPUR, Aug 20 — The recently released 2014 Governance and Transparency Index (GTI) has seen some huge gainers – but also some big losers.
There were more than one hundred companies which gained more than 100 places, and another 104 companies which lost more than 100 places, in the annual ranking released July 25.
Among the top gainers are Auric Pacific Group Limited, Roxy-Pacific Holdings Limited and QAF Limited.
Meanwhile, among the biggest losers are Boustead Singapore Limited, HG Metal Manufacturing Limited and Cosco Corporation (Singapore) Limited.
The GTI is compiled by NUS Business School and Business Times, and ranks companies based on their annual announcements.
The 2014 statistics are based on the financial year 2013, with annual reports released by 31 May 2014.
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Notable gainers
Auric Pacific Group Limited is among the most outstanding gainers.
Its ranking in the GTI surged 255 places to 47th place.
Auric Pacific makes, sells and distributes food and consumer goods under brands such as Delifrance, Sunshine Bread and Food Junction, and operates in Singapore, Malaysia, Hong Kong and China.
It also invests in property and securities.
Notably, its CEO is former SMRT chief Saw Phaik Hwa, who left the public transport company in early 2012 after massive train outages just before Christmas 2011.
1. What corporate governance and transparency initiatives did the former SMRT CEO implement to boost Auric Pacific’s standings in the GTI so dramatically?
Remarkably, Auric Pacific’s gains in the GTI came at a time when it posted a loss in FY13.
The most recent financial statements announced on August 8 – just before the National Day weekend – showed a big decline in Q2 and H1 earnings.
This goes to show that a company can still rank highly in governance and transparency, even when the operating performance is going through a rough patch.
2. How will operating challenges impact Auric Pacific’s governance and transparency initiatives?
In its Q2 financial statements, Auric Pacific said it expects continuing upward pressure on manpower and rental costs.
Even as it promises to manage its business risks and cash flow prudently, and take steps to enhance its operational efficiency, how is it ensuring that it doesn’t slip in the GTI to former levels?
3. Is the stock trading at fair value?
Clearly, every company wishes its stock price was trading higher.
Since Saw Phaik Hwa was appointed at Auric Pacific on April 9, 2012, the stock has risen from 72.5 cents to around S$1.20 – a gain of 65.5 per cent.
But it is still trading below book value of S$1.67.
Is it time for a re-rating of the stock?
Another outstanding gainer is Roxy-Pacific Holdings Limited, which owns the Grand Mercure Roxy Hotel in Marine Parade, and is in a joint venture to build EON Shenton at 70 Shenton Way.
The company also invests in properties in Australia and Hong Kong, among others.
Roxy-Pacific said in its Q2 earnings announcement August 1 that they expect to recognise progress billings of around S$955.4 mln over the 14 quarters between Q3FY14 and FY17.
That equates to around nine quarters’ worth of revenue, going by the Q2 revenue number of S$103 mln.
Recently, CEO Teo Hong Lim increased his direct stake in the company to 9.16 per cent, by buying 300,000 shares, worth S$178,000, on February 18 this year.
The company ranks at number 52 in the GTI this year, having jumped 133 places from the 2013 Governance & Transparency Index.
4. What is Roxy-Pacific doing differently this year that might account for such a steep improvement?
Another big gainer is QAF Limited, jumping 123 places to rank at number 84.
Its brands include Gardenia bread in Singapore, Malaysia and the Philippines, as well as Bonjour bread, and Farmland.
It also recently announced the expansion of Gardenia’s bakery operations into China.
August 12 it announced a near tripling of its Q2 net profit, including a restatement for the adoption of FRS 110 accounting rules.
Costs fell faster than revenue.
It forecasts another rise in profit for Q3 and the full year.
The stock is worth 73.8 cents, and was recently traded at 85 cents a share.
The company was queried by the Singapore Exchange on April 16, to disclose whether the salary of executives who are related to the CEO exceeded S$50,000 during the year.
The company replied that Lin Kejian, son of the Vice Chairman Andree Halim was the only such relative, and he earnt less than S$50,000 for FY13.
5. What is QAF doing differently this year that might account for such a steep improvement?
Notable decliners
On the downside, the biggest noteworthy decliner in the GTI 2014 is Boustead Singapore Limited.
Its rank dropped from 207 to 552 this year, a drop of 345 places.
It reported a profit of S$70.7 mln, a 13 per cent drop from FY13.
This is probably due to the lower contribution from the Real Estate Solutions and Geo-Spatial Technology division.
But the GTI doesn’t concern with operational performance, but performance in terms of governance and transparency.
6. What are the latest developments in the US$18.8 million suit against Boustead Singapore over its Libya project?
Arab Banking Corp is suing Boustead Singapore in the Singapore High Court for US$18.8 mln, plus costs, in relation to the Al Marj Project in Libya.
Boustead disputes the claim and says it intends to defend itself vigorously against the action.
But Boustead Singapore has not made any further disclosures regarding the Group’s exposure in Libya on the Al Marj Project.
The company last said on February 28 that its legal advisors have reconfirmed the strength of the Group’s case of force majeure, and the third set of the trial was set to run from June 30 to July 3.
What are the latest developments on the case?
What makes their legal advisors confident with the company’s strength in the third set of trial?
Reply from Mr Keith Chu, Vice President - Corporate Marketing & Investor Relations, Boustead Singapore Limited: We just released our 1Q FY2015 financial results announcement and there is a statement on our legal case related to Libya contained within the announcement.
To make it easier, I have extracted the relevant section from the announcement (page 16) as follows:
“Since the Group’s last update in respect of its financial exposure in Libya on the Al Marj Project in the FY2014 financial results announcement, the Group’s legal advisors have reconfirmed the strength of the Group’s case. The third tranche of the trial was completed in July 2014 and the final submission by both parties will be made during August 2014. Thereafter, the judge will review the case and has up to six months to deliver his verdict.”
Boustead Singapore has also been queried by the SGX, mostly about unusual trading activity.
Another big loser in the GTI rankings is HG Metal Manufacturing Limited at 574th place, down from 252nd place last year.
According to an announcement, Mr Kenn Wong Kean Shyong quit as executive director and chief marketing officer in August last year after 6 months of his appointment, to pursue other career opportunities.
7. Are governance and transparency issues taking a back seat while they are sorting out their operational issues?
The company faced a challenging year as competition intensified.
The economic conditions for the global steel industry remained uncertain and steel products continued to experience price volatility with a downward trend.
The company also foresees that they will continue to face pressure on their business because the imbalance in steel supply and stiff competition in 2014.
However, they reported that they have made progress on a number of initiatives to strengthen their future growth.
They boosted their Construction Steel business by installing a second line in their fully automated steel cut-and-bend facility, steel distribution business in Malaysia and their Indonesian team is actively pitching for new projects.
How much can the initiatives contribute? Can the investments help the company to achieve their goals in the long run?
Admittedly, we had a difficult time posing these questions to the company because there was no contact email address to be found on its website.
Cosco Corporation (Singapore) Limited is also one of the biggest losers in the GTI, dropping to 332nd place from 174th.
The company operates one of the largest offshore marine engineering, ship building, ship repair & conversion and dry bulk shipping outfits in China.
Its most recent financial statement showed turnover was S$3.5 billion, down by 6 per cent, and the net profit attributable to their shareholders was S$30.6 million, a decline of 71 per cent.
It is concerned about the impact of the winding down of financial stimulus measures in the advanced economies, the strength of the Chinese Yuan against the US Dollar, higher financing costs and the escalation of raw material and labour costs.
But that doesn’t explain the decline in the GTI.
8. Are governance and transparency issues taking a back seat while they are sorting out their operational issues?
The company is also one of the lowest ranked Singapore stocks in the Brendan Wood International Shareholder Confidence Index with a score of just 544 (scores below 700 are generally considered to be targets of shareholder activism).
We have invited the company to an on-camera interview, and/or to reply to our questions in writing.
At the time of publication we have not received a reply (which is why you are seeing this message).
We will update this report if we do.
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