KUALA LUMPUR (March 18): Software solutions firm EA Holdings Bhd (EAH) has proposed a one-for-five bonus issue of new shares, and the acquisition of a 20% stake in a mechanical and electrical engineering (M&E) company for RM47.04 million, the company announced to Bursa Malaysia today.
According to EAH ((fundamental: 1.65; valuation: 0.9), the bonus issue will involve up to 267.36 million new shares of 10 sen each.
Meanwhile, the acquisition of a 20% stake in M&E firm, Cekap Air Sdn Bhd, will be funded with the issuance of 470 million new shares, at an issue price of 10 sen each, to vendors Chong Mui Fun, Shankar a/l Muniandy, Yong Chee Hon, Yeoh Seong Mok, Yong Zhen Wei and Yeoh William.
With Cekap Air, EAH will diversify its current business in software solutions to include M&E and construction project management consultancy.
Cekap Air is principally involved in the provision of hydraulic M&E engineering for water supply and treatment while its wholly-owned subsidiary company, namely WY Consultancy & Development Sdn Bhd, of which the acquisition by Cekap was completed in January 2014, is principally involved in project management consultancy and related activities.
According to EAH’s filing to Bursa, Cekap Air posted a net profit of RM10.39 million for the financial year ended Dec 31, 2014, on a revenue of RM27 million. In FY2013 and FY2012, Cekap posted a net profit of RM515,000 and a loss of RM83,000, respectively.
Based on the filing, the vendors of Cekap will provide an after-tax profit (PAT) guarantee of at least RM56 million in aggregate for the two financial years ending Dec 31, 2015 and 2016. This translates into an average PAT of RM28 million per annum.
“Based on the above and the value accorded to 100% equity interest in Cekap Air of approximately RM235 million, the purchase consideration represents a price-to-earnings (PE) multiple of 8.4 times,” said EAH, adding that Cekap Air’s current order book of RM53.89 million will provide earnings visibility up to July 2017.
Cekap Air’s largest shareholder, Chong Mui Fun, will emerge as a major shareholder in EAH once the exercise is completed. Chong will have a 19.69% stake, while EAH’s existing major shareholder, Mohammad Sobri bin Saad who currently owns 17.15%, will see his interest diluted to 11.74% immediately after the proposed bonus issue and acquisition.
EAH closed unchanged at 12 sen today, with a market capitalisation of RM102.04 million.
(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.)