Tuesday, January 23, 2024

Dr Yu and YNH: How the mighty could fall

YNH is gone and the vultures are encircling the air to seize on the carcasses of the dying company. The company shares could fall further and at discount to its NTA, it will be a good buy or bye depend which side of the deal one is. 

The medical doctor and his advisers of young lawyers thought they won and able to outwit a Bank. But then 19 Banks pulled the carpet from under their feet. 

Reading back articles of Dr Yu Kuan Chon in 2014 here, 2016 here, and 2017 here, it is a good reminder and gave a sense of realisation of our mortality. Even the mighty could fall. 

M Shanmugam of The Edge wrote a piece today on Dr Yu: 

Rapid fall of Dr Yu’s shares shatters his invincible image

By M Shanmugam / The Edge Malaysia

22 Jan 2024, 12:30 pm

Datuk Dr Yu Kuan Chon’s rise to fame in Corporate Malaysia was not due to his ownership of the flagship development company YNH Property Bhd (YNH) and precision tooling outfit Rapid Synergy Bhd (Rapid).

He became a well-known figure after an epic seven-year corporate battle with tycoon Tan Sri Quek Leng Chan as the latter attempted to privatise Hong Leong Capital Bhd (HL Cap) in 2013. Dr Yu failed in his objective of getting a higher price for HL Cap as the seasoned Quek, who already had almost 80% of the company before launching the takeover, stood firm with his offer of RM1.71 per share.

But as Dr Yu built up a minority position in HL Cap, the highly illiquid counter hit more than RM13 in 2015. Subsequently, Bursa Malaysia suspended the stock for failing to meet its requirement for a public shareholding spread.

The suspension was only lifted five years later on Nov 13, 2020, after HL Cap undertook a private placement to fulfil the shareholding spread regulation. Based on HL Cap’s latest annual report, Dr Yu still holds more than seven million shares in the company.

But his fortunes in the stock market have taken a drastic turn for the worse in the last 10 days.

Dr Yu’s aura of invincibility has been shattered as his stocks have been crashing since Jan 9. YNH is now reduced to a penny stock while Rapid is also heading that way as investors continue to dump its shares.

Prior to last week, YNH shares had been steadily rising in the last 18 months — from less than RM3 to RM5 — amid thin trading volume. Rapid was hovering at RM5 two years ago before gradually going up to a high of RM27.

At their height, the combined value of YNH and Rapid was RM5.4 billion. Today it is less than RM750 million and still falling.

Another stock in which Dr Yu is a substantial shareholder, Imaspro Corp Bhd, was also sold down. But sentiment on the pesticide and fertiliser company has recovered for two reasons. The first is that unlike at YNH and Rapid, Dr Yu is not involved in its management. He is only a substantial shareholder with about 15% while Tong Chin Hen is the controlling shareholder with almost 50%. Second, Tong’s block of shares is unencumbered, meaning that it is not pledged to financial institutions and cannot be force sold.

The selling over the last 10 days is estimated to have shaved off at least RM1.8 billion from Dr Yu’s paper wealth. And the damage did not end at YNH, Rapid and Imaspro.

It sent jitters across brokers, banks and private financiers. The knock-on effect resulted in a sharp retracement in the share prices of at least 20 stocks that have had a speculative run since the beginning of the year.

According to a report by The Edge, at least 13 stocks, whose shares have had a good run since the beginning of the year, came down with a thud. The estimated paper loss is at least RM7 billion, with the major shareholders bearing the brunt.

Among the companies are Sarawak Consolidated Industry Bhd, Artroniq Bhd, Mercury Securities Bhd, Widad Group Bhd, Leform Bhd, Jentayu Sustainables Bhd and Mestron Bhd.

The common feature among these stocks is that some of the substantial shareholders have pledged their shares to financial institutions and private lenders. Secondly, the share prices of the stocks have been rising without any marked improvement to their fundamentals.

Among them, YNH and Rapid bore the brunt of the current selldown. Even during the pandemic, they had been unaffected while the broad market fell.

Dr Yu and his brother Datuk Yu Kuan Huat listed YNH in 2005 by injecting their property assets located in Manjung, Perak, into the ailing Techno Asia Holdings Bhd. It was a backdoor listing. YNH are the initials of their father, Yu Neh Huat.

The company has valuable parcels in prime areas including the Kuala Lumpur city centre, Sri Hartamas and Genting Highlands. Its township developments are located in Manjung and Tanjong Malim, Perak.

When YNH and Rapid’s share prices were on the uptrend, one would have expected the major shareholders to undertake placement exercises to capitalise on the rising value of the companies and take some money off the table. But it did not happen. Based on the latest annual report, the shares of Dr Yu and Kuan Huat remained pledged to financial institutions.

The first signs of trouble for the Yu brothers surfaced early last year with social media postings of irregularities at YNH and Rapid regarding their business dealings and joint-venture projects. In April, the companies extended their financial year end by six months and in October, the external auditor flagged concerns over YNH’s accounts.

By then, the banks had already stopped extending loans to the companies, which forced them to speed up the sale of assets to raise capital.

At about the same time, the significant rise in Rapid’s share price caught the attention of the authorities, which sent an alert to stockbrokers.

According to those close to Dr Yu, he has a strong sense of the workings of the corporate world and the stock market. But his views on valuing companies are generally not in sync with those of fund managers and high-net-worth individuals.

As YNH continues to come under selling pressure, Dr Yu and his brother face the risk of losing the flagship company. Despite its debts and questionable transactions as raised by the external auditors and the authorities, YNH has valuable parcels of land that should attract predators.

Unlike other distressed companies such as Serba Dinamik Holdings Bhd, whose contracts were questionable and where value cannot be attached, YNH has parcels of land that are tangible. There is value to the company and unless Dr Yu arms himself with loads of cash to mop up the shares, another party may take over the reins.

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