bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

authorLocations

authors

paywallTypes

corrections

sponsorType

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

THE Lam Soon Group of companies has disappeared off most broker and investor radar screens.

  Volatile profit growth, regular cash calls and a series of restructures at the foodstuffs and packaging group has put off investors and analysts alike.

  Yet there could be an opportunity for the speculative investor in the group's edible oils and flour subsidiary, Lam Soon Food Industries.

  After a period of restructuring, the juggling has now stopped, according to the management. Sales in 1995 from China are due to be level with those from Hong Kong.

  Over 1996 and 1997, China revenues will overtake Hong Kong with 70 per cent of sales coming from across the border by 1998.

   This makes the company a potential red chip play in a steady staple industry with very experienced Hong Kong management in a market place that can only grow. Lam Soon Food sales in 1994 were $848 million.

  Deputy managing director Stephen Chung said yesterday the cash calls were over. The group is now focused on raising capacity utilisation at its big plant in Shekou with a view to raising sales in China and paying down the group's high gearing ratio, at 110 per cent at the beginning of last year.

  At the top of the corporate tree is Lam Soon (Hong Kong). This owns about 56 per cent of the 1991 spin-off Lam Soon Food. In 1992, 60 per cent owned MC Packaging was spun-off.

  Analysts complain the group is disparate and confusing to follow. It also suffers from relatively poor liquidity in its shares. Analysts prefer to follow Ng Fung Hong, Guangnan, or China Resources.

  Lam Soon (HK) has fallen 26 per cent over five years, according to Bloomberg, against a rise in the index of 250 per cent. Since the start of the year it is down 1.2 per cent against a rise in the index of 12.75 per cent.

  Lam Soon Food has slumped 58 per cent since listing in July 1991 against a rise on the index of 180 per cent. On the year-to-date it has bettered its parent, rising 11 per cent.

  MC Packaging is the best-followed company in the group because of its focus on can-making in Taiwan. It has plans to break into the Japanese market ahead. Since listing in the autumn of 1992, the stock is up 24 per cent against 88 per cent on the index. Since the start of the year the stock is up 11 per cent, almost in line with the market.

  This lowly regarded group could be of interest to investors who like backwater stocks.

   MC Packaging is fairly heavily, followed with analysts expecting a 16 per cent rise in profit for 1995, at December 31, to $166.6 million. Profits in 1996 are expected to rise 23 per cent. All this is probably in the stock price. Lam Soon (HK) is a bit complicated - with interests in computing, software and property.

  Lam Soon Food is in a simple business, edible oils and flour mills, and is poorly covered as just seven brokers provide profit forecasts on the company. In the short term, news about the firm is going to get worse.

 Profit in 1995 is due to plummet 81 per cent to $92 million, with earnings per share falling 87 per cent to 14 cents and a dividend at five cents, down 44 per cent. In 1996 profit growth is due to get back on track, rising 44 per cent to $132.7 million with earnings per share up by a similar margin at 21 cents and a dividend of seven cents.

   The big drop in 1995 profits is in the wake of a $420 million subsidiary sales exceptional booked in 1994 after a group restructure. Profit excluding the exceptional in 1994 would have been $52 million, up 54 per cent on 1993. Profit growth in 1995, after stripping out the exceptional, is expected to be more than 75 per cent.

  Mr Chung reports the big capital expenditure at the group is over. This has amounted to spending something like $1 billion in China on new plant and new capacity. Volume growth with sales expansion in China is going to power profits in the future.

  Looking ahead, investors need to be assured the company will stay true to its word and not dilute minorities in cash calls or trigger another round of exceptionals in a restructuring. The expected growth in profits and rise in share price will not be astronomic - it will be steady.

  At the 91 cents close yesterday, four cents above the 87 cent historic low on January 3, the stock is trading on 4.3 times 1996 prospective earnings with a prospective yield of 7.7 per cent.



Subsidiary is a tempting morsel for speculators