This article first appeared in The Edge Malaysia Weekly on October 23, 2017 - October 29, 2017
A Hong Kong-based private equity (PE) firm is expected to surface as a substantial shareholder in small-cap timber firm BTM Resources Bhd within the next one to two weeks, sources say.
Two sources tell The Edge that the Hong Kong investment management firm, which is said to have acquired at least a 3.1% stake in BTM Resources, will continue to mop up shares in the company through various methods, including a private placement and warrant conversion.
Bloomberg data show that three direct business transactions involving four million shares — representing a 3.1% stake — were done at 10 sen apiece on Oct 10.
“So far, that is [four million shares] crossed off market. Ultimately, the [Hong Kong investing firm] will raise its shareholding in BTM Resources to around 25 million shares,” says a source.
It is learnt that BTM Resources is now deliberating a private placement of 12.8 million shares with its corporate advisers, which represents up to 10% of the total issued shares.
A back-of-the-envelope calculation shows that 25 million shares represent 17.7% of the enlarged share base of 140.9 million.
The source says that with or without the private placement, the Hong Kong PE firm will emerge as a new substantial shareholder of the company as it has started accumulating the issued warrants.
“Some of these 25 million shares will be coming from the exercise of warrants. In fact, 1.1 million shares have been issued and listed on Oct 19 under warrant conversion. They are trying to round up all the warrants B from the market,” the source reveals.
The 10-year BTM-WB came free with a two-for-one rights issue about three years ago. The security, which carries a strike price of 20 sen and a one-to-one conversion ratio, expires on Oct 23, 2024. As at March 31, there were 29.48 million warrants B yet to be converted, according to the company’s 2016 annual report.
At press time, BTM Resources had not replied to queries from The Edge.
Listed on the Main Market of Bursa Malaysia in 1996, BTM Resources was founded by its managing director, Datuk Seri Yong Tu Sang, who is the single largest shareholder with a 9.85% direct stake. His wife, To’ Puan Ng Ah Heng, owns 7.98% equity interest.
Their daughter Yong Emmy — the group’s non-executive director — has a 9.65% direct stake. Her younger brother Yong Hin Siong also sits on the board as executive director, while her younger sister Yong Ellen is an alternate director.
The Yong family members collectively own at least a 32% stake in BTM Resources. The company has not made any announcement on substantial changes in shareholding since June 2015.
Year to date, shares of BTM Resources have risen 6%, to close at 26 sen last Thursday, giving it a market capitalisation of RM33.3 million. In the past one year, the stock has traded at 21 sen to 35 sen. The stock is currently trading at trailing 12-month price-earnings ratio of 48 times, and a price-to-book value of 1.2 times.
BTM Resources is primarily involved in the wood-based industry — manufacturing wood moulding, priming timber and laminated timber; provision of kiln drying services; trading in sawn timber, plywood and veneer; and sawmilling and logging.
The group’s operations are located wholly in Malaysia with manufacturing and sawmill facilities in Terengganu and a marketing office in Selangor. Its customers are mainly domestic dealers in wood products and local exporters of wood-based products.
Its moulding and priming wood products are mainly exported to Australia, South Korea and the Philippines, which contributes about 30% to the group’s revenue with the local market contributing the balance.
The group posted a net profit of RM400,000 in FY2016, compared to a net loss of RM2.63 million a year ago. The turnaround was mainly attributable to improved sales volume and pricing of wood products.
Interestingly, the Hong Kong-based PE firm is said to be interested in BTM Resources’ power generation project in Melaka, according to another source.
“The Hong Kong fund house is keen on the green technology business. It intends to ride BTM Resources to gain a foothold in this sector as it is a relatively cheaper proxy,” the source says.
Recall that in April, BTM Resources signed a memorandum of understanding (MoU) to collaborate with two Chinese companies — the China Western Power International Pte Ltd and Sichuan No 2 Electric Power Construction Company — to establish a RM435 million municipal solid waste-to-energy (WTE) generation plant in Melaka.
Under the MoU, all three parties will jointly invest in securing the power generation project via a special purpose vehicle. The Singapore-incorporated China Western Power and the China-based Sichuan Power will procure the entire funding cost for the engineering, procurement, construction and commissioning of the project and wholly fund the technology development cost.
BTM Resources’ obligation is to secure a waste disposal concession of not less than 25 years from the state government and suitable tipping fee and power purchase agreement. In addition, the company is also required to identify, propose and procure a suitable site for the WTE plant, which will have a capacity of not less than 1,000 tonnes per day.
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