KUALA LUMPUR (Oct 21): Sinotop Holdings Bhd has proposed to diversify its existing core business to include project management and infrastructure construction-related businesses, as additional earning streams for the China-based fabric manufacturer.

Sinotop derived 91.6% of its RM185.63 million revenue from China in the financial year ended Dec 31, 2015 (FY15).

In a filing with Bursa Malaysia today, Sinotop said the financial performance of its existing business has been fluctuating over the past five years under review, due to the increasingly challenging market in the fabrics production industry in China and higher fuel costs in its operations.

This has led to its net profit falling from RM6.95 million in FY11 to RM2.08 million in FY15.

"The net profit margin has been low, reducing from 4.58% to 1.12% over the past five years under review," it added.

"The proposed diversification will allow the group to reduce its reliance on its existing businesses, which is in a very competitive and challenging landscape, while also providing an additional stream of revenue and earnings for the group," Sinotop group managing director Pan Ding said in a statement today.

Sinotop is also proposing to undertake a capital reduction and repayment exercise, which will give rise to a credit of approximately RM276.43 million. This involves the cancellation of 14 sen of the par value of each existing share of 20 sen each, of which 12.49 sen per share would be setoff against the accumulated losses of the company and 1.51 sen per share would be repaid to its shareholders of Sinotop.

The losses were a result of investment impairment accumulated by its subsidiaries since 2011.

This would result in the reduction of the issued share capital of the company from approximately RM394.9 million comprising 1.97 billion shares of 20 sen each to approximately RM118.47 million comprising 1.97 billion shares of 6 sen each in Sinotop.

Following the proposed capital reduction and repayment exercise, Sinotop plans to undertake a share consolidation of every five existing shares of 6 sen each in the company into one consolidated share of 30 sen each. This will reduce the company's shares from 1.97 billion shares to 394.9 million shares.

“The proposed exercises will assist the group to have a more efficient capital structure and the proposed diversification will be able to provide the group with stability and predictability income stream. I believe that we will be able to cobble a sturdy path of long-term value for our shareholders,” said Pan.

“The cash repayment to the shareholders is also aimed to reward the shareholders for their continuous support to the group,” he added.

The proposals are subject to approvals by the High Court of Malaysia for court order, relevant regulatory authorities, as well as shareholders at an extraordinary general meeting to be convened.

Barring any unforeseen circumstances, Sinotop expects the proposals to be completed by the first quarter of 2017.

As at 3.44 p.m. today, Sinotop shares were up 8.33% at 6.5 sen, with 8.02 million shares done. Its market capitalisation stood at RM128.34 million.