CN Asia to diversify into property, plans raising RM45.38m via rights issue

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KUALA LUMPUR (May 22): Industrial equipment manufacturer CN Asia Corp Bhd plans to diversity its business to property development by acquiring two adjacent plots of land in Selangor, totalling 237.48 acres, for RM20.5 million.

In a filing to Bursa Malaysia today, CN Asia said it has signed two separate sale and purchase agreements today, to effect the purchase. One was with Crystal Bond Sdn Bhd who owns a plot of 117.66-acre land with a net book value of RM300,000, while the second was with Marvellous Production Sdn Bhd who owns the remaining 119.82 acres with a net book value of RM6.6 million.

Both plots are located on Jalan Balakong, Seri Kembangan.

Loss-making CN Asia said the diversification will reduce the risk of over-dependence on its existing core business, which is facing intense competition in the current challenging operating environment, while providing another source of revenue stream.

CN Asia reckoned the proposed diversification provides it “the right opportunity” to tap into the property development sector, which it deemed has “good growth prospects”, and unlock the value of the lands.

To finance the land buy, CN Asia has proposed a cash call to raise up to RM45.38 million via a 2-for-1 renounceable rights issue — based on an indicative issue price of RM0.50 per rights share — together with free warrants.

Under the proposed cash call, it plans to issue up to 90.765 million rights shares on the basis of two rights shares for every existing share, along the issuance of up to 68.07 million warrants on the basis of three warrants for every four rights shares, which will be offered for subscription at an entitlement date to be determined later.

CN Asia said it will determine the final issue price, once it has received regulatory approval for the rights issuance.

Besides raising funds to fund the proposed land acquisition, CN Asia said the proceeds of the proposed cash call will also be used for working capital, to repay bank borrowings, and to relocate its factory and related expenses.

Prior to implementing the proposed cash call, CN Asia plans to undertake a par value reduction of its existing issued and paid-up share base of RM45.38 million of 43.38 million ordinary shares of RM1 each, to RM22.69 million with the same number of shares at 50 sen each, by cancelling 50 sen from the par value of each share.

As at the last trading market day preceding its announcement today, the closing price of CN Asia shares was 50 sen, which is at a discount of 50% to the existing par value of the shares of RM1.

It said the proposed par value reduction will give it greather flexibility to raise funds and implement future corporate proposals which entail the issuance of new shares.

It has also proposed to establish an employee share option scheme (ESOS), together with a proposed increase in its authorised share capital, from RM50 million of 50 million ordinary shares of RM1 each to RM500 million of 1 billion shares.

As at Dec 31, 2014, CN Asia’s total borrowing stood at RM12.46 million, with a gearing ratio of 0.53 times. On the completion of the corporate exercises, CN Asia expects its borrowing to fall to RM9.46 million, at a gearing of 0.08 times.

CN Asia expects to complete the transactions in the first quarter of 2016.

CN Asia (fundamental: 0; valuation: 0.9) manufactures storage tanks for the petroleum and general process industries.

The group has been bleeding losses for the last four years, since financial year ended Dec 31, 2010 (FY10). Its accumulated losses currently stands at RM25.51 million.

The stock has fallen 67.95% from RM1.56 on July 11 last year, to close unchanged at 50 sen today, giving it a market capitalisation of RM22.69 million. Year-to-date, the stock has shrunk by 5.5 sen or 9.9%.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations)