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REX INDUSTRY BERHAD – A Turn Around Play

Rex Group is involved in manufacturing of canned food, beverage and confectionary products. Rex Canning Co. Sdn Bhd, a wholly owned subsidiary of Rex was founded in 1965 and has since grown into a leading manufacturer, distributor and exporter of halal canned products, frozen food, and beverages in Malaysia. PT Rex Canning Indonesia began commercial operations in August 1992; with principal activities in manufacturing and exporting of canned processed seafood. PT Rex Canning operates under stringent standards set by the Ministry of Marine Affairs and Fisheries of Indonesia. The majority of PT Rex’s canned seafood is exported to the US and EU.

Rex has been suffering losses in 4 of last 5 financial years and the company has been in the red for the last 11 consecutive quarters since December 2017. It is also interesting to note that the current controlling shareholders comprising Darmendran A/L Kunaretnam and Chee Cheng Chun (direct and also indirect via Daiman Taipan Sdn Bhd) first emerged as substantial shareholder in 2015 and added stakes in 2016 – 2018.

Rex financial

Despite the Covid 19 pandemic and MCO, Rex has its first profitable quarter in a while when it reported net profit of RM0.79 million in the Q1 of FYE6/21 which ended in September 2020. This is on the back of 15% increase in revenue compared to corresponding quarter FYE6/20. The growth in revenue is mostly due to overseas subsidiary which mainly export to the U.S.

Rex has implemented a 1 for 1 rights issue recently at RM0.10 which raised around RM24 million. The fund raised will be utilized for reduction of bank borrowings, working capital and upgrading of machineries.

The major shareholders, via Daiman Taipan, have recently added their stakes by buying from the open market additional 6.5 million shares on 31 December 2020 (share price between 25 sen to 25.5 sen). Darmendran now owns more than 37% of the company from his direct stake and indirect stake via Daiman Taipan.

With the confidence shown by the major shareholders and stronger financials following the rights issue, Rex could turn out to be a strong turn around play. At a price of 26 sen as at 15 January 2021, this company is worth a look.

rex - chart

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