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This article first appeared in The Edge Financial Daily, on October 26, 2015.

 

Ang-Chuang-Juay_FD_26Oct15_theedgemarketsKUALA LUMPUR: Loss-making ConnectCounty Holdings Bhd, which cancelled its planned RM25 million acquisition of a contracting firm last month, will continue to look for acquisitions or opportunities to expand into a fully integrated cable provider.

ConnectCounty executive deputy chairman Ang Chuang Juay said the group’s decision not to go ahead with acquiring electrical, mechanical and telecommunications contractor Kejuruteraan Asastera Sdn Bhd — and with it the proposed rights issue to fund the buy — was due to the realignment of the group’s strategic plans, besides weak market sentiments.

The buy would also have seen the group diversifying its core

business into electrical, mechanical and telecommunications engineering contracting.

“[Now] we plan to reposition the group to be in a more upstream business segment, where costs can be better managed, resulting in better earnings and margins,” he told The Edge Financial Daily recently via email.

Going upstream means more control over upstream supplies, Ang said, adding that the plan to become a fully integrated cable provider is to bolster the group’s competitiveness.

He pointed out that the company’s acquisition of the remaining stake it didn’t own in HS Co Ltd recently was also part of its vertical integration process to increase margins and tap into the potential of the raw cable market.

“HS has been renamed Rapid Power Co Ltd and is currently a wholly-owned company of our Shenzhen-based [wholly-owned] subsidiary, Rapid Conn (ShenZhen) Co Ltd,” Ang said.

“We will also need to manufacture plastic resin and connectors on our own to increase the margins,” he said, adding that the company will continue to look for opportunities to invest in or acquire such companies.

Meanwhile, Ang said the company will seek other fundraising avenues “in the event that a new investment is beyond its ability”.

However, ConnectCounty’s cash and bank balances only stood at RM3.91 million as at June 30, with total borrowings at RM371,000.

Interestingly, just over a month after it cancelled its initial cash call to fund the acquisition of Kejuruteraan Asastera, the group, on Oct 19, again announced a proposed rights issue, this time to raise RM20.03 million for its capital expenditure and working capital.

The maximum proceeds are about 34% of its market capitalisation, according to its last traded price of 27 sen last Friday

After the announcement of the first cash call on May 22, the company’s share price, which has been climbing steadily since the beginning of the year, surged to 31 sen on June 29 — up about 29% from May 21 — before giving up its gains as the broader market sentiment soured.

This time, the proposed exercise — which will involve up to 800.99 million new irredeemable convertible preference shares (ICPS) at an issue price of 2.5 sen per unit — has also garnered interest from investors, judging from the share price, which is again on the rise and went up to 30 sen on Oct 18.

The issuance will be on the basis of three ICPS for every one share held in the company, with up to 53.4 million free detachable warrants, on the basis of one free warrant for every 15 ICPS subscribed.

Meanwhile, on whether ConnectCounty can turn around this financial year, Ang said the company remains “cautiously optimistic” about achieving positive results for the full year despite the improved results it saw in the second quarter ended June 30, 2015 (2QFY15).

It saw a net profit of RM688,000 in 2QFY15, compared with RM13,000 in the previous corresponding period — mainly due to lower administrative expenses — while revenue improved a marginal 4.6% to RM15.9 million from RM15.2 million.

However, it recorded a lower margin of 28% for the six months ended June 30, compared with 30% in the first half of FY14, primarily due to an overall increase in labour costs.

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