GBH’s prospects uncertain after EGM

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Tan admitted during the recent EGM that the growth in the ceramic-ware industry is limited - Photo by Chu Juck Seng

TAN SRI Robert Tan Hua Choon may be one of the few shareholders who walked away smiling from Goh Ban Huat Bhd’s extraordinary general meeting (EGM) last week.

Others were probably left wondering what GBH’s future prospects would be as a resolution on a reverse takeover (RTO) exercise, which was supposed to turn the ceramic-ware maker into an oil and gas outfit, was terminated shortly before the shareholders’ meeting.

The “change of heart” on the RTO deal at the eleventh hour by Dynac Sdn Bhd owner Datuk Abdul Rahman Mohamed Shariff shattered GBH’s hope of a brighter future with the injection of the O&G assets.

GBH’s share price took a nosedive after news broke of the termination, sliding from a five-year peak of RM2.46 early last month to RM1.70 last Thursday.

On the other hand, Tan, the controlling shareholder of GBH, is now a major landowner in the Segambut area, which is close to Mont’Kiara.

At the EGM, GBH shareholders passed a resolution to sell a prime 13.8-acre parcel in Jalan Segambut, on which its plant is located, to Kedah-based Keladi Maju Bhd for RM192.4 million cash. Tan is a substantial shareholder of Keladi Maju with a 16.8% stake.

The disposal was initially meant to raise fresh capital for the takeover of Dynac, which is involved in the provision of support services to the O&G sector.

The land purchase grants Keladi Maju an instant entry into a sought-after area in the capital city.

It is worth noting that FCW Holdings Bhd, in which Tan also holds 25.5% equity interest, owns a few parcels next to Keladi Maju’s newly acquired land. Interestingly, FCW also bought the parcels from GBH in 2007.

FCW has entered into a 50:50 joint venture with IJM Land Bhd to develop 16.58 acres with a gross development value of RM1.3 billion. For Keladi Maju, its parcel could have a gross development value of RM1 billion, if not more.

Like it or not, the deal seems tailor-made for Tan.

It is learnt that the RTO exercise, involving Dynac and its subsidiary Globalmariner Offshore Services Sdn Bhd (GMOS), fell through because the parties involved could not “sort things out” as the date for the submission of the papers drew nearer.

Nevertheless, sources say the relationship between Tan and Abdul Rahman remains intact, despite the termination of the deal. Abdul Rahman is a substantial shareholder of GBH with a 9.85% stake as at July 7.

The proposed RTO included GBH buying a 35% stake in Dynac’s subsidiary GMOS, a provider of floating production storage and offloading (FPSO) vessels and offshore marine solution. GMOS was expected to be GBH’s crown jewel, amid the perceived growing demand for FPSO vessels in the O&G industry.

In an earlier interview with The Edge, GMOS group CEO Zahar Mohd Hashim Zainuddin said the partnership with GBH “made sense” as it would enable GMOS to tap the equity market for capacity expansion. This is deemed necessary given the capital-intensive nature of the business as GMOS needs money to acquire vessels. The cost to build a vessel is between US$200 million (RM649.8 million) and US$1 billion, subject to specifications.

It is unclear if Dynac’s next move would be to hunt for another RTO target or go the initial public offering route.

Apart from the stock’s roller-coaster ride, has the exercise helped to improve GBH’s prospects?

One consolation could be that GBH is now a cash-rich company, with RM192.4 million soon to be in its coffers, which translates into RM1.03 per share. But it owns a languishing ceramic-ware business and operates at razor-thin margins in a highly competitive environment.

Even Tan, who bought into the company in 2006, admitted during the recent EGM that the growth in the ceramic-ware industry is limited.

GBH disclosed that it will be on the lookout for future O&G business opportunities as its “first pick”, but will not discount other proposals that could come its way as well. Nonetheless, it did not put a time frame on how long it would take for it to do so.

Speaking to the media after the company’s EGM, Tan said if GBH is not able to secure new assets, it may return part of the RM192.4 million cash proceeds to shareholders.

With his 64.1% equity interest in hand, Tan could pocket as much as RM123.28 million should GBH return the entire cash pile to shareholders.

For the second quarter ended June 30, GBH’s net profit dipped to RM509,000, down 69% from a year ago. Revenue inched up marginally to RM13 million from RM12.62 million.

GBH made a loss in three of the past five financial years. It posted a net profit of RM4.96 million or 2.67 sen per share for FY2013.

Excluding the cash per share of RM1.03, as at last Thursday’s close of RM1.69, GBH shares were trading at a historical price-earnings ratio of 63 times. Will Tan pull another rabbit out of his hat to add excitement in order to sustain the share price?

This article first appeared in The Edge Malaysia Weekly, on October 06 - 12, 2014.