This article first appeared in The Edge Financial Daily on November 20, 2017

KUALA LUMPUR: Ho Wah Genting Bhd (HWG) is back into the limelight, seeing a surge in trading interest in its shares after the stock slipped to a historical low of 4.5 sen in September.

The keen interest emerged after the company unveiled its latest move to diversify into a duty-free retail store in Genting Highlands, raising hope that such a move would revive its profitability. Its trading volume spiked up to 97.3 million as compared with its 200-day average volume of about 5.3 million.

HWG has proposed share consolidation, diversification plans into the travel retail business and a private placement of up to 30% of the issued capital of the group.

Cash calls and diversification are common among listed entities, but more so for HWG.

From 2012 until the end of last year, the company had raised some RM61 million through a few corporate exercises, including private placements and rights issues that were sweetened by free warrants.

To put into perspective, HWG is currently trading at six sen with a market capitalisation of RM59.9 million, which is slightly lower than the amount of cash it has raised in the past five years.

To put it bluntly, HWG’s past revealed that the company had tried to diversify into new businesses in order to gain a new lease of life but to little success.

In 2012, the company bought a controlling 51% stake in Myled Opto Tech Sdn Bhd, a manufacturer of solid state lighting (SSL) and LED for RM1 million, but a reversal of the acquisition happened that same year due to disagreement by key management of Myled Opto to adopt HWG’s proposed management and operation policies.

In that same year, HWG also proposed a share placement, which raised about RM17.8 million, to repay bank borrowings and for working capital.

In early 2013, HWG engaged in another private share placement, raising about RM13.7 million to grow its mining operations. Interestingly, it ventured into the auto sector in the same year as it wanted to diversify its earnings stream. It bought into Rex Oriental Sdn Bhd for RM3 million.

Rex Oriental is an investment holding with its 70% owned subsidiary, Orient Sun Motors Sdn Bhd (OSM), being involved in trading in commercial vehicles. The acquisition was expected to provide the company an instant avenue to foster greater working relationships with Chinese automakers, not only in terms of establishing a firm footing in Malaysia, but with the potential of penetrating neighbouring Asean countries through Malaysia under the Asean Free Trade Area treaty.

As a result of its venture into the auto sector, the utilisation of its private placement saw a variation of RM2.8 million lesser for its tin mining exploration works. Instead, it was used to purchase pickup trucks for trading purposes for OSM.

In 2014, HWG’s adventure in searching for profitable business continued. It raised investment in the tourism sector by buying a 59.5% stake in Ho Wah Genting Holiday Sdn Bhd from Adanan Baharum for RM1.45 million. Adanan was then HWG’s employee, according to a filing with Bursa Malaysia.

HWG’s investment in the auto business hit a wall. In 2015, it sold off the equity stake in OSM for RM595,000, which led to a loss of about RM4.42 million inclusive of the waiver of advances, and its wholly-owned subsidiary Ho Wah Genting Trading Sdn Bhd entered into a cooperation agreement with Singapore Metals & Minerals Pte Ltd for the supply of ferrous, non-ferrous and base metal minerals.

Again, HWG asked for more money from shareholders. It raised some RM24.5 million cash through its rights issue with warrants proposal that year, which was intended to repay bank borrowings and as payment to trade creditors as well as working capital.

With the financial performance in the red after a couple of diversification plans, the rights issue was undersubscribed with about 50.93% of the rights shares subscribed.

Given the need for fresh working capital to sustain the going concern, HWG in September last year did a share placement at the price of barely 5.5 sen. It managed to place out 90.7 million new shares, raising about RM4.99 million.

Fast forward to today, HWG has proposed to undertake a four-to-one share consolidation, as well as diversify into the travel retail business. It is also looking to raise gross proceeds of up to RM20.18 million through a private placement of up to 30% of its issued shares, or 77.62 million shares, after the proposed share consolidation exercise.

The proceeds will be used as shareholders’ equity and shareholder loan into a new business venture with Dufry International AG for the operation of a duty- and tax-free shop in Genting Highlands Resort, Pahang, and for the group’s working capital.

Looking at its financial results, HWG was last profitable in 2010 when it recorded a net profit of RM9.85 million. Nonetheless, when contacted, its executive chairman, Datuk William Teo Tiew, was optimistic about the company’s turnaround strategy and expect its bottom line to return to the black next year.