LUM Chang Holdings last Tuesday reported its results for its first half ended December, with earnings significantly lower than the prior year. What stood out, however, was the high dividend being declared.

 

The construction firm saw revenue for the half-year fall 30 per cent to S$130.9 million from a year ago. This was mainly due to slow resumption of work at two construction sites, and lower revenue from two construction projects that were substantially completed in the previous financial year.

 

Net profit for the half-year fell to S$159,000 from S$7 million, with earnings per share plunging to 0.04 Singapore cent, from 1.85 cents a year earlier.

 

Despite the lacklustre results, the company declared a dividend of five Singapore cents per share for the current financial period - comprising an interim dividend of 0.75 cent and a special dividend of 4.25 cents per share.

 

The dividend amounted to nearly 13 per cent of Lum Chang' s 38.5 cents closing share price on Feb 9, when the results were announced.

 

It is significantly higher than the 0.3 cent interim dividend a year earlier, and also exceeds the average total dividend of 1.84 cents paid in each of the last 10 financial years.

 

The company did not offer an explanation in its financial statements on why it raised the interim dividend, or the reasons for the special dividend. Investors should, however, note that the higher payout comes shortly after Lum Chang' s controlling shareholders raised their collective stake in the company.

 

Mandatory offer

 

In November, the family that controls Lum Chang, together with engineering solutions company Ellipsiz, made a mandatory offer for the shares in Lum Chang.

 

The offer had been triggered by Beverian Holdings' purchases of Lum Chang shares. Beverian is controlled by Lum Chang' s managing director David Lum.

 

Under Rule 14 of Singapore' s takeover code, any party holding 30 per cent to 50 per cent of a company will have to make a mandatory offer for the remaining shares if that party buys more than 1 per cent of the company within a six-month period.

 

The offeror, RMDV Investments, was owned by Ellipsiz, Mr Lum, and his brother Raymond Lum, who is Lum Chang' s executive chairman.

 

The siblings were controlling shareholders of Lum Chang, with a combined 42.7 per cent stake as at Nov 17, and offered 38 cents apiece for the remaining Lum Chang' s shares.

 

That was 10.1 per cent above Lum Chang' s 12-month volume weighted average price of 34.5 cents, and the offeror suggested this was an opportunity for shareholders to realise their investment at a premium.

 

Nevertheless, the parties had said it was their intention to keep Lum Chang listed.

 

After the offer closed last month, the offeror and its concert parties ended up with 79.22 per cent of Lum Chang.

 

Puzzling strategy

 

The offeror had said in November that it intends for Lum Chang to continue with its existing activities, with no intention to introduce any major changes to the business of the group.

 

In its commentary in the latest financial statements, Lum Chang said its construction operations have resumed, after complying with various government Covid-Safe start measures. It said it " continues to monitor the situation closely while exercising financial prudence and will implement further cost-saving initiatives where required" .

 

It is hence unclear why Lum Chang is paying out so much of its cash.

 

If not for Covid-19-related government support of S$4.5 million received in H1 FY2021, Lum Chang would likely have reported a loss.

 

Lum Chang used S$32.9 million in cash in its operating activities for the period. Its borrowings also increased as it drew down on facilities to fund some projects.

 

Although the company had S$114.3 million in cash and cash equivalents at end-December, it had S$195.5 million in group borrowings excluding lease liabilities.

 

That still gives Lum Chang a relatively low gearing ratio of about 32 per cent, and perhaps the company' s management has decided that its balance sheet could be optimised.

 

Or perhaps management has decided there are no better uses for the roughly S$18.8 million that Lum Chang will be paying out.

 

Shareholders appear to be happy with the decision.

 

Since the dividend was declared, Lum Chang shares have risen more than 19 per cent or 7.5 cents to close at 46 Singapore cents on Monday - their highest in over a decade.

 

It would, nevertheless, be useful for the management of Lum Chang to disclose their reasons for the large dividend, as well as their plans for the firm going forward.

 

This would give investors better visibility on whether the company will maintain its dividend payout in future, and provide clarity on Lum Chang' s direction following the mandatory offer.

Lum Chang Holdings

 

Between Nov 5 and 11, Beverian Holdings Pte Ltd acquired 744,600 shares of Lum Chang Holdings (LCH) for a consideration of S$260,582, at 35 cents per share.

 

LCH managing director David Lum Kok Seng maintains interests of more than 50 per cent in the share capital of Beverian.

 

The acquisitions increased Mr Lum' s total interest in LCH from 21.67 per cent to 21.86 per cent, and this followed the acquisition of 73,000 shares, at the same price on Oct 30.

 

On Oct 30, Beverian Holdings Pte Ltd acquired 73,000 shares of Lum Chang Holdings (LCH) for a consideration of S$25,550 at 35 cents per share.

 

LCH managing director David Lum Kok Seng is deemed to have interests in the whole of Beverian' s shareholdings in issuer, by virtue of his interests of more than 50 per cent in the share capital of Beverian.

 

Mr Lum maintained a 21.67 per cent total interest in LCH as of Oct 30.

 

The filing also detailed preceding acquisitions by Beverian Holdings Pte Ltd, between Oct 22 and 28, with 233,700 shares acquired also at 35 cents per share.

 

Mr Lum' s entrepreneurial leadership, coupled with more than 40 years of industry experience, has been attributed by LCH to driving its increased footprint, affirming the business as a strong and trusted local construction brand known for quality and reliability.

 

Mr Lum has successfully led the expansion of the group' s property development activities in Singapore and Malaysia, and is actively spearheading the group in property investment projects in the United Kingdom.

 

Between Sept 17 and 22, Lum Chang Investments Pte Ltd (LCI) increased its direct interest in Lum Chang Holdings from 16.05 per cent to 16.45 per cent.

 

The 3,046,000 shares were acquired for a consideration of S$1,066,100 at 35 cents per share.

 

Lum Chang Holdings executive chairman Raymond Lum Kwan Sung is deemed to have interests in the whole of LCI' s shareholdings in Lum Chang Holdings due to his interests of not less than 20 per cent in the issued share capital of LCI.

 

His total interest in Lum Chang Holdings stood at 20.57 per cent as of Sept 22.

 

With more than 40 years of business experience, Mr Lum' s visionary leadership has seen the group through diversification, successful business alliances and timely corporate moves, leading to its present focus on construction and property development.

 

MAINBOARD-LISTED construction group Lum Chang Holdings has won a public tender to refurbish the conserved former State Courts building.

 

Its wholly-owned subsidiary' s S$155.5 million contract for additions and alterations to The Octagon at Havelock Square - which will house the Family Justice Courts - includes an optional five-year maintenance service package worth S$9.4 million. The project is expected to take 28 months, with revenue to be recognised progressively.