MOSTLY ignored by investors during the post-election rally, Encorp Bhd's shares are finally seeing interest following a management buyout that saw the exit of long-time shareholder Datuk Seri Effendi Norwawi.

The move was led by CEO Yeoh Soo Ann and COO Mohd Ibrahim Masrakin, who together acquired 30.55% equity interest from Effendi on July 18. Although the value of the transaction was not disclosed, the stock closed at 70 sen on the day the filing was made.

The management buyout has given the largely undervalued counter a new lease of life. The stock jumped 50.81% to a 52-week high of 93.5 sen last Thursday.

Property analysts laud the move and are confident that Yeoh, who accomplished a similar feat with Great Wall Plastic Bhd previously, will be able to lead the company forward.

"Yeoh has a track record of delivering and giving back to shareholders. Great Wall Plastic was one of the companies he took private, before relisting it and subsequently selling its core business to Scientex Bhd. In due course, the shareholders were well rewarded," says an analyst.

Furthermore, as management had kept a low profile, many investors overlooked the stock despite the company's major projects, such as Encorp Strand in Kota Damansara and Encorp Marina Puteri Harbour in Iskandar Malaysia, Johor.

The Iskandar Malaysia project, launched last year, has a gross development value (GDV) of RM500 million and is already sold out. In total, Encorp's projects have an estimated GDV of some RM3.5 billion.

For 1QFY2013 ended March 31, Encorp recorded a net loss of RM5.12 million on the back of RM72.12 million in revenue. It recorded a loss of RM1.52 million in the previous corresponding quarter.

Encorp attributed the loss to higher marketing and distribution expenses incurred for its property development projects as well as financing costs from the sukuk it issued last year.

Be that as it may, the analyst believes the company will not have any trouble repaying its debts as its projects have good pick-up rates and long concessions.  

The RM1.57 billion sukuk murabahah was issued by its unit, Encorp Systembilt Sdn Bhd, to refinance previous debt undertaken to fund the construction of 10,000 units of teachers' quarters throughout Malaysia based on a 30-year "build, transfer and finance" concession from the government.

The teachers' quarters were delivered in 2004. The government will make monthly payments until the 30-year concession expires in February 2028.   

"Encorp's developments have sold quite well in the market and many have sold out although their values have not been booked in their accounts," says the analyst.

Meanwhile, property industry sources say the management buyout had been on the table for several months. "This will be a fresh new start for Encorp as the parties concerned had been deliberating on the move for the past six to eight months," an industry source tells The Edge.

"The buyout directly aligns the interests of the top management with the performance of the company," he adds.

Effendi says in a statement that he opted to exit via a management buyout to ensure continuity and to make sure long-term goals were fulfilled by those who had been with him since the company was established in 1997.

"I leave Encorp in the hands of capable, dedicated and passionate leaders, who have journeyed with me since we started," he says, adding that he left to focus on other interests, including a return to the media industry and the arts.

Meanwhile, Yeoh says he will
"focus on business as usual" and is confident the company will continue to do well in the future. "This is both an honour and a huge responsibility that we take on, but we are confident of Encorp's ongoing success. Encorp's next stage of growth will be nothing short of spectacular," he adds.

Yeoh's confidence is not unwarranted as shortly after the buyout, Encorp Construct Sdn Bhd, a unit of the company, secured a RM114.06 million contract from Setia Haruman Sdn Bhd for the construction and completion of main contract works for a SoHo in Cyberjaya, Selangor. The contract is for 24 months, with works commencing from Sept 2.

"The award of the contract is expected to contribute positively to Encorp Group's earnings and net assets for the financial years during the contract period," the company says.

This follows a RM69.9 million contract secured from NRY Architects Sdn Bhd in June for main contract works for a 30-storey block of serviced apartments on Jalan Raja Chulan in Kuala Lumpur. The group's construction arm, Encorp Construction, has an order book worth RM500 million to date.

On July 23, Datuk Md Hamzah Md Kassim was appointed non-executive chairman of Encorp following Effendi's exit. "I am honoured to chair the company and will work with the new leadership to ensure we continue to grow from good to great as was the desire of the outgoing executive chairman," he says in a statement.

Encorp also announced the appointment of Datuk Feroz A S Moidunny as non-executive director replacing Effeida Mohd Effendi, Effendi's daughter, who also exited the company as part of the management buyout.

At 12.30pm noon break today, Encorp shares mere up 8 sen or 8% at RM0.10 per share, on trades of 3.44 million shares.

This article first appeared in The Edge Malaysia Weekly, on July 29, 2013.