KUALA LUMPUR (Jan 31): Asia Poly Holdings Bhd, a manufacturer of acrylic products and a property developer, is looking to diversify its business to include renewable energy (RE) business via the acquisition of an 80% stake in Dolphin International Bhd's unit for RM2.12 million.
Asia Poly said it is of the view that the proposed acquisition will diversify its revenue and contribute positively to the group's future earnings.
Under the proposed deal, Asia Poly will also assume liabilities comprising RM341,270 owing by Dolphin Biogas Sdn Bhd to its parent Dolphin, as well as any advances made by Dolphin to Dolphin Biogas.
In a bourse filing today, Asia Poly said its wholly-owned subsidiary Asia Poly Green Energy Sdn Bhd (APGE) has entered into a conditional share sale agreement with Dolphin for the proposed acquisition of 4.5 million shares, or an 80% stake, in Dolphin Biogas for RM2.12 million, which translates to a price-to-book ratio of one time.
In a separate filing, Dolphin said the proposed deal is deemed a related party transaction in view that Asia Poly is a major shareholder of Dolphin with an 11% stake as at Jan 30, 2020 and the holding company of APGE, and that Thoo Soon Huat and Tan Ban Tatt are common directors in both Asia Poly and Dolphin.
Dolphin Biogas, through its subsidiary Biogas Sulpom Sdn Bhd, is involved in the business of manufacturing, processing and supplying of biogas.
In 2014, Biogas Sulpom had obtained the approval from the Sustainable Energy Development Authority Malaysia (SEDA) to sell electricity to be generated from its 2-megawatt biogas plant to be constructed and located within a palm oil mill at Dengkil, Selangor to Tenaga Nasional Bhd (TNB) under SEDA’s feed-in tariff system for 16 years.
The RM25 million biogas plant has commenced operations, but Biogas Sulpom has yet to bill TNB for the sale of electricity as the former has not received TNB’s certification for the meter used to track the electricity feed-in to TNB’s grid.
Dolphin said the proposed disposal would enable the group to unlock its non-core asset to alleviate its cash flow constraints.
"The proposed disposal would also reduce the amount of bank borrowings of the group by RM19.4 million resulting in a decrease in gearing from 1.6 times to 0.8 times and a reduction in finance cost of RM1.1 million per year after the completion of the exercise," it added.
Meanwhile, Asia Poly said it will pay the RM2.12 million amount through internal funds. As at Sept 30, 2019, Asia Poly's cash and bank balances stood at RM21.75 million while borrowings were RM19.08 million.
Asia Poly's profit has been on a declining trend for the past three financial years and recorded a net loss of RM3.06 million for the financial year ended Dec 31, 2018 (FY18) and a net loss of RM6.64 million for the cumulative nine months ended Sept 30, 2019 (9MFY19).
"The group's main business in the manufacturing of acrylic products has also faced headwinds, recording losses of RM1.54 million for the FY18 and RM1 million for 9MFY19.
"In view of the current financial performance of Asia Poly Group, the management has identified the RE business as a source of additional income stream and had embark on the RE business via its indirect wholly-owned subsidiary Asia Poly Bio Gas Sdn Bhd, which has been granted a feed-in approval by SEDA to supply biogas to TNB and is expected to commence operations in the fourth quarter of 2022," said Asia Poly.
UOB Kay Hian Securities (M) Sdn Bhd has been appointed as the adviser for the proposals.
The board expects the proposals to be completed by the second quarter of 2020.
Shares of Asia Poly closed unchanged at 6 sen per share today, with a market capitalisation of RM27.46 million. Dolphin shares settled at 13 sen, up 0.5 sen or 4%, valuing it at RM31.75 million.