Tax credit queries for Teck Wah

I was glad to read about Isetan's decision to declare a historically large dividend of $1.50 per share in an attempt to return the Section 44 tax credits to its minority shareholders. This was despite the objections of its parent, Isetan Japan.

Unfortunately, despite the late deadline for these tax credits to be used, there are still some companies which have yet to return these tax credits.

I mention here the case of a locally incorporated company, which also has significant tax credits and large cash balances which has yet to do so.

The company in question is Teck Wah Industrial Corp Ltd (TWIC). TWIC recently announced its full-year results for December 2006. It achieved very good results, a 40 per cent increase in after-tax earnings to reach $8.36 million or $0.0365 EPS. Its cash balance was a very healthy $23 million, net of debt. This works out to about 10 cents per share, also net of debt.

I believe the company must have significant tax credits of $5,000,000 at least, as it has Retained Earnings of more than $64 million. This amount will be able to frank about 12 cents of dividends. The tax benefit to the minority shareholders is about two cents, much more than the paltry dividend declared of only 0.82 cent per share. Imagine if the tax credit is larger than my estimate.

Nevertheless, even if the company did not intend to declare a dividend as just illustrated, it makes sense for it to follow the Isetan example to declare a larger dividend using its cash balances as this is the last year in which this exercise can be done. It will then give a signal that the company is cognizant of its shareholders' interests.

I hope this will encourage and spur these companies to give the right, much needed signal.

Charles Chua Kuan Lim