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.
The duo at Quarz Capital point out that there is a lack of information on the company’s strategy and an ill-timed overvalued acquisition could stunt growth.
“The firm made an untimely acquisition in April 2019, paying $9.1million for a 70% stake in Profoto at an estimated rich premium of 2.6x its book value. With the acquired business highly exposed to the events and digital print for shopping malls and retail segments, the acquisition is likely to be loss-making these 2 years due to Covid-19,” the letter says.
“Despite the languishing financial results, Teckwah rewarded its directors and key personnel with compensations which increased significantly from $4.3million in 2009 and peaked at $6.3 million in
2017(+45%). As net income to shareholders fell 40% y-o-y in 2018, directors’ compensation of $2.7million rose to a staggering 38% as a ratio of Net Profit to shareholders,” the letter continues.
The best way to narrow the gap between NAV and price is to commit to a dividend hike, articulate a clear growth strategy for the non-print business, and enhance corporate governance, the letter adds.
