Low profile food and beverage ingredients manufacturer Three-A Resources Bhd (3A) has seen continuous buying by one of its substantial shareholders, Teo Kwee Hock.

Teo, first emerged as a substantial shareholder on Feb 3, 2020 with a 4.89% stake in the company, or 24.09 million shares, according to Bursa filings.

Since then, Teo has been steadily buying up the shares. As of Aug 19, Teo now 10.16% in 3A, or 49.83 million shares.

Meanwhile in 3A’s latest annual report, Teo Siew Lai is the fourth largest shareholder with a 4.94% stake in the company. Siew Lai is believed to be related to Kwee Hock.

This would mean that Kwee Hock owns 15.15 of the company. 

The largest shareholder of 3A continues to be the Fang family, with a 20.55% stake in the company, directly and indirectly via Fang Chew Ham Holdings Sdn Bhd.

Meanwhile the second largest shareholder is Wilmar International Ltd, one of the world’s largest agribusiness companies, with a 15.71% stake. Billionaire Robert Kuok is the founder and CEO of Wilmar. Wilmar has been invested in 3A since 2009.

Teo is thus the third largest shareholder of the company.  

Not much is known about Teo, apart from the fact that he is a low profile smart investor with an eye for undervalued small caps.

So what does Teo see in 3A?

Worthwhile mentioning is that Three-A totally exited the China market after it failed to yield a profit since it first invested there in 2010.

In 2017, 3A announced that it was disposing off its 50% stake in Three-A (Qinhuangdao) Food Industries Co Ltd (TAQ) to Yihai Kerry Investments Co Ltd a wholly-owned subsidiary of Wilmar for about RM3.3mil.

Since then, 3A’s businesses have been totally based in Malaysia.

At first glance, the company appears to be a small cap, with its market cap of RM393.6mil based on 492 million shares. The company currently has a price earnings ratio of 11.92 times (x) and also offers a dividend yield of 2.75%.

Its earnings have been pretty stagnant, although stable over the last three years. Between FY18 to FY20, net profit has been hovering at the RM29mil to RM30mil mark.

The same can be said for its share price, which has hovered between the 80 sen to 85 sen level. Over the last one year, it has averaged volume of only 470,900 shares per day.

Business wise, 3A is an investment holding company with its core strength in the manufacturing of food and beverage ingredients.

It started as a caramel producer in 1977 and expanded its product portfolio, eventually gaining a foothold in many parts of the world.

Its wholly owned subsidiary San Soon Seng Food Industries Sdn Bhd (SSSFI) is one of the leading food and beverage ingredient manufacturing company.

Listed since 2002, it was transferred to the Main Market of Bursa Malaysia in 2008.

Its product portfolio includes:

• Liquid Caramel, Caramel colour
• Vinegar
• Glucose Syrup, High Maltose Syrup
• Soya Protein Sauce (HVP)
• Hydrolysed Vegetable Protein (HVP) Powder
• Maltodextrin
   

Three products namely Caramel, Maltodextrin and Glucose constituted more than 80% of the revenue of the Group for the financial year 2020.

An inflection point soon?

During its 19^th AGM on June 21, 2021, 3A revealed a few interesting findings about its upcoming prospects.

Management seems quite optimistic on its growth moving forward despite the Covid-19 pandemic. For one, the utilisation rate of its production facilities continued to be at high levels, indicating continuous good demand despite the poor economic environment.
 

See table below:

As of the first quarter ended March 31, 2021, the Malaysian market contributed 56.2% to 3A’s revenue, followed by Singapore with 9.4% and other countries contributing a collective 34.4%.

Thus, the export market now contributes 43.8%, which is an improvement from 39% in 2019.

Management has been encouraged by the wide acceptance of its products globally as seen by the increasing contribution of the overseas market.

Thus, the group will continue investing in research and development initiatives to broaden the range and appeal of its products.

The Group strongly believes that it is on the right track to accomplish its vision to be a recognised global leader in the food and beverage ingredients industry known with products of exceptional quality.

For the recent first quarter results ended March 31, 2021, net profit was up 50.56% to RM13.31mil on the back of a 25.99% jump in revenue to RM126.87mil.

This was due to a surge in local demand following depressed conditions in 2020. Local customers were sourcing for more products from 3A as a result of logistical supply chain issues compounded with resulting sudden surge in freight costs.

The overseas export revenue also contributed to the better quarterly numbers.

During the AGM, the board said that they are cautiously confident that the Group can continue with the current financial performance in the coming 6 months.

This would indicate that the upcoming second and third quarter results will also be positive.

Management has guided that they will be spending RM21mil in capex for 2021, and is confident of achieving a reasonable growth in revenue in the financial year 2021.

Over the longer term, the board is optimistic that the Group will continue to deliver reasonable revenue growth and profitability in the next few years.

Dividends wise, management has guided that based on 3A’s recent financial performance, they are confident that the company can continue to pay reasonable amount of dividend to shareholders.

Growth Moving Forward – Maltodextrin

For those unfamiliar with one of 3A’s main products, maltodextrin is a white, starchy powder that manufacturers add into many foods to improve their flavour, thickness, or shelf life.

It is a common ingredient in packaged foods, such as pastries, candies, pasta and soft drinks. When it is present, it will usually feature on the food label. Athletes may also use maltodextrin as a carbohydrate supplement.
 

In edible products, maltodextrin can help by:

• thickening foods or liquids to help bind the ingredients together
• improving texture or flavor
• helping to preserve foods and increase their shelf life
• replacing sugar or fat in low-calorie, processed foods
   

Due to increasing demand of maltodextrin, 3A is continuing with automation plans for selected production plants with the objective of improving production plant efficiency and savings in operational and manpower costs.

The utilisation of Maltodextrin production plant no. 3 had improved at the end of year 2020. The Group expects the utilisation to continue to increase in 2021 with encouraging interests from a few major customers.

Management had said that Maltodextrin plant no. 3 was designed to produce certain grades of maltodextrin, with the intention of capturing customers with specific applications.

Meanwhile, the upgrading of Maltodextrin plant 2 to increase its plant efficiency is still on-going. In view of increasing demand for maltodextrin products, the Group has also deferred earlier plans to convert its first- generation Maltodextrin plant 1 to produce caramel powder products and other powder products to a later stage.

With the company putting in resources on its maltodextrin plants, this would point to the company anticipating an increase in orders or customers for its maltodextrin products in coming months.

With markets worldwide reopening following the Covid-19 pandemic, 3A could be a Food & Beverage reopening play to consider. The stock is cheap, and has yet to move.