In a somewhat belated reaction, KBG’s share price has nearly doubled in the past month to 56 cents, while KBE’s share price rose 117% over the same period, reaching 17.5 cents on April 22.
About a month ago, both KBG’s and KBE’s 15-day average daily trading volume stood at just 230,000 shares and 1.3 million shares, respectively. Right now, these figures have increased sharply to 3.7 million shares and 57.5 million shares, respectively.
The Edge Singapore first flagged the valuation gap on April 10. Oiltek is 68.1% controlled by KBE, and the stake was valued at $728 million at the time, compared with KBE’s entire market cap of $512.4 million.
Meanwhile, KBE is 54.8% held by KBG — a stake valued at $280.8 million, versus KBG’s total market cap of just $251.5 million. KBG’s effective stake in Oiltek is almost $400 million, nearly twice its current market capitalisation.
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Ahead of this year’s AGM on April 29, a group of shareholders put forward a resolution to put to a vote the distribution of Oiltek shares in specie via KBE.
The same resolution put forward by this group of shareholders last year did not pass, so one can expect that, as Oiltek’s share price has surged even further, the impetus is stronger.
However, KBG, which is headed by executive chairman and group CEO Francis Koh, announced on April 13 that it would not put the resolution to a vote. From those shareholders’ perspective, the value of Oiltek remains stuck.
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KBG maintains that it took into consideration, among other factors, the current operating environment, which remains uncertain and volatile; KBG’s financing arrangements; the potential effects on the financial positions of Oiltek, KBE and itself; and its ability to direct Oiltek’s strategy and future growth.
The reluctance, in a sense, is not surprising. Oiltek’s performance can help mask potentially less-than-stellar core operating numbers for KBE and, to a lesser extent, KBG.
In our subsequent Frankly Speaking column published on April 17, we mentioned that with the ongoing efforts by the Monetary Authority of Singapore and the Singapore Exchange on the value unlocking programme for the local equity market, companies, especially undervalued companies, should start to do more to lay out concrete plans to unlock value for shareholders to bridge the valuation gap.
Both KBG and KBE’s shares are catching up, but clearly, this run-up is not quite as rewarding as receiving Oiltek shares. Nonetheless, the market system is, on the whole, better with this ongoing episode. On the one hand, Oiltek is a company that has done much to carve out a fast-growing niche and create value for its shareholders. If we look hard enough, plenty of other hidden gems are around. As for KBG and KBE, if they refuse to move to unlock value for their own shareholders, as in all free-market investing decisions, the signal will be sent in the usual way.
