Friday 29 Mar 2024
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KUALA LUMPUR: Mining and civil engineering outfit Minetech Resources Bhd, which is seeking a waiver from making a mandatory general offer (MGO) from the Securities Commission Malaysia (SC) pursuant to its proposed acquisition of Glamour Heights Sdn Bhd (GHSB) for RM27.45 million, expects to finalise the due diligence process by the end of this month.

“It has always been our ultimate aspiration to be a property developer in addition to being a contractor, but the [legal and financial] due diligence [on GHSB] is still ongoing. We expect to finalise the exercise by end-January,” executive director Matt Chin Leong Choy (pic) told The Edge Financial Daily in an interview.

Minetech (fundamental: 0.95; valuation: 0.6) had in November last year signed a memorandum of agreement (MoA) with GHSB to acquire the latter and two of its existing projects — The Meru Dream Park and a condominium — at a RM27.45 million price tag, which would be fully satisfied via the issuance of new shares of 15 sen.

It had noted that this method, however, was likely to trigger a MGO by GHSB as one of its key persons, Low Choon Lan, who is Chin’s mother, currently has a 28.58% indirect stake in Minetech. Thus, the group is seeking a waiver from the regulator.

Nevertheless, Minetech had previously stated that it would consider a combination of share issuance and cash payment to satisfy the purchase consideration.

Chin said the management has already engaged with the SC in seeking for the MGO waiver, but has not secured an approval yet.

If the deal materialises, this will be its maiden foray into the property development market, with Chin predicting that the new business will make up about 30% of the group’s revenue in the future.

Minetech registered a revenue of RM122.5 million in the nine-month period ended Sept 30, 2014 (9MFY15), down 20.4% from RM153.9 million a year ago.

Of this total, 31.1% is contributed by its civil engineering business, followed by its quarry products segment at 27%, premix products (22.6%), bituminous products (15%), and others (4.3%).

However, the group swung to a net loss of RM397,000 in 9MFY15 from a net profit of RM1.13 million a year ago, due to the write-off of old fixed assets and those with net book value of less than RM5,000 per unit.

Chin said revenue for FY16 ending March 31 is likely to be flattish at between RM150 million and RM200 million. The group has changed its financial year end to March 31 from Dec 31, starting the current financial year (FY15).

“We have been doing some ‘house cleaning’ (write-offs) since 2013, which is part of our corporate strategy. In 2015, we will be working on enhancing our (profit) margins,” said Chin.

Chin believes that Perak’s property market has potential to grow being a second-tier state despite the current slowdown in the overall industry.

It is understood that the project that caught Minetech’s eye in its proposed acquisition of GHSB is the condominium project in Bercham, Ipoh. Dubbed “Glamour Avenue”, the project features a 22-storey condominium block housing 180 units, with a gross development value of more than RM80 million.

Moving forward, Chin said the group will continue to expand its quarry business, following the recent rights issue which had raised RM49.9 million. Out of this, RM20 million has been allocated for acquisition of quarry sites in Peninsular Malaysia and another RM10 million to venture into the heavy machinery business.

Despite being loss-making, shares in Minetech have been in active trading since June last year, following the announcement of its rights issue. The trading volume went much higher after Minetech’s rights share commence trading in November, with an average daily trading volume of 45.1 million shares in last two months compared with 10.1 million shares from June to October last year.

Minetech’s share price closed down 9.52% at 9.5 sen last Friday, with 267.75 million shares traded, bringing a market capitalisation of RM63.16 million.

“I personally think that it (active trading) was because of our recent rights issue, which comes with a warrant attached to it, coupled with several Bursa [Malaysia] announcements that we made,” said Chin.

Meanwhile, Chin said Minetech’s RM15 million offer to sell its wholly-owned unit Minetech Asphalt Man International Sdn Bhd to South Korea’s Asphalt Man International Co Ltd could also be part of the catalysts that drove up its trading volume.

The offer is valid for two weeks from Jan 5, and Chin is confident that both parties can enter into a definitive agreement within this period.

“We (Minetech and Asphalt Man) have known each other for a long time. I believe we are clear on each other’s demands as well. The ideal terms for us is to maintain some shareholding in Minetech Asphalt Man because we still see potential in the [asphalt] business,” he said.

 

This article first appeared in The Edge Financial Daily, on January 19, 2015.

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