Intraco Limited

Kim Eng on 21 June 2012

Background: Intraco was founded in 1968 to open up export markets for Singapore manufacturers and to promote external trade for the fledgling local economy, a mission that was vital in the early stages of Singapore’s industrialisation. In 2003, food and provisions supplier PSC Corp, now called Hanwell Holdings, gained a controlling 29.9% stake. A PSC-led turnaround followed and Intraco built up a nice little cash pile. Its net cash currently accounts for 54% of its market value. However, it appeared that PSC has reached the limit of what it could do, and its 29.9% stake was sold to TH Investments, the investment company of the family that controls crane operator Tat Hong.

Why are we highlighting this stock? Business tycoon Oei Hong Leong has surfaced as a substantial shareholder of Intraco with a 21.1% stake just five days after TH bought into it at SGD0.62/share. Living up to his reputation however, Mr Oei’s average cost was only SGD0.50/share, way below TH’s cost. Not surprisingly, talk of a possible tussle between TH and Mr Oei has started, as have enquiries into the true value of Intraco. What did these two investors see in Intraco, which may still prove to be a value trap or an undervalued gem?

Personal background may be behind TH’s entry. As the controlling shareholder of a company that is heavily involved in construction, building materials and natural resources including mining, Intraco’s core business of trading in metals, minerals, building materials, food and fertiliser may explain TH’s interest. In the past two years, it was clear that only Intraco’s trading division has seen improvement in sales and profitability.

Our armchair analysis leads us nowhere for now. Without actually visiting Intraco, we cannot really pinpoint any hidden value in the company. But it appears to be in good health with an NAV of SGD0.70/share with cash making up the largest portion at 64%. TH may be able to inject new assets or new businesses in future.

But Oei Hong Leong may have spotted a good deal. Based on Intraco’s ex-cash market cap, Mr Oei is valuing Intraco at less than 3x earnings. Based on our coverage of CWT, which in mid-2011 bought over base metal trader MRI at 6x earnings, this may mean he has spotted a significantly undervalued company with a similar pedigree. However, note that Hanwell has yet to seek shareholders’ approval, unless it obtains a waiver from SGX.