This article first appeared in The Edge Malaysia Weekly on July 8, 2019 - July 14, 2019
LITTLE-known Kumpulan Powernet Bhd (KPowernet) was thrust into the limelight last month after Datuk Dr Mohd Abdul Karim Abdullah — the founder and group CEO of Serba Dinamik Holdings Bhd — emerged as a substantial shareholder of the loss-making textile manufacturer.
In his personal capacity, Abdul Karim bought a 20.04% stake in KPowernet.
At the same time, another 10.18% stake was acquired by Grand Deal Vision Sdn Bhd, a privately held company owned by Mustakim Mat Nun (49%) and Sarah Azreen Abdul Samat (51%).
Abdul Karim may be linked to the deal by virtue of him being a registered holder of Grand Deal Vision, which is engaged in renting of construction machinery and equipment with operator, such as cranes. This would take Abdul Karim’s stake in KPowernet to 30.22%, making him the largest individual shareholder.
So, why is KPowernet appealing to Abdul Karim? The company has been loss-making since financial year ended Dec 31, 2010, and bled red ink to the tune of RM4.98 million in FY2018, RM7.19 million in FY2017 and RM8.39 million FY2016.
Its latest quarterly results show that KPowernet had debts of RM1.28 million in March this year, down from RM4.2 million a year before. But it also had RM1.67 million in cash, leading to a net cash position of RM391,000.
According to market observers, KPowernet’s property development segment could be the jewel in the crown. In 2017, it acquired the development rights to a commercial project in Sentul, Kuala Lumpur, from the then largest shareholder SSF Home Builder Sdn Bhd for RM6.9 million.
The group was to build a 6-storey shopoffice to be used as the head office of Yayasan Bekas Wakil Rakyat Malaysia as well as five 5-storey shopoffices.
According to KPowernet’s 2018 annual report, piling works for the development had commenced and was expected to begin contributing to group revenue in the financial year ended June 30, 2018. (The group changed its financial year end in FY2016.)
The group also has an investment property in Liverpool, the UK, which comprises a student hall with 36 rooms. The rent earned from this property amounted to RM518,662 in FY2018, slightly more than the group’s operating expenses incurred in running the property of RM403,729.
Even so, it will take a while for the property development segment to contribute meaningfully to the group’s bottom line, given current market conditions.
While he declines to reveal what he finds attractive about KPowernet, Abdul Karim says he does not have any intention of merging the group’s operations with the larger Serba Dinamik, which he owns a 23.61% stake.
But he does not rule out the possibility of KPowernet working with Serba Dinamik, indicating that both companies may come together in a collaboration or synergy “to provide a complete supply chain capability” in the domestic and international markets on a competitive basis.
There are hints of what may be in the pipeline. Already, a restructuring of KPowernet’s operations is underway, which will see the company reducing its focus on the core textile business and concentrating more on property development and diversifying into energy and infrastructure.
Asked whether KPowernet’s new focus in the energy sector will overlap with Serba Dinamik’s existing businesses, Abdul Karim says, “Serba Dinamik’s energy project will be mainly along the asset ownership business model, that is, engineering, procurement, construction and commissioning (EPCC) and operations and maintenance (O&M) contracts.
“On the other hand, KPowernet will be [bidding for] either equity or EPCC contracts, including project management and consultancy, but no O&M.”
In the meantime, KPowernet’s existing businesses will proceed as usual, he says in a text message to The Edge.
On his recent appointment as deputy chairman of KPowernet, Abdul Karim explains that he does not have an executive role and is not involved in the day-to-day decision-making.
“It will not jeopardise my executive role in Serba Dinamik,” he says.
“Mustakim, who is a shareholder and the managing director of KPowernet, will be the key person to drive the group forward with plans approved by the board of directors.”
KPowernet’s share price began climbing from a low of 30 sen on May 6, and more than tripled to a one-year high of 92 sen on June 20 — the day Abdul Karim bought a 20.04% stake in KPowernet from SSF and former non-independent non-executive director Datuk Lee Chong Hoon.
In fact, when the exchange asked management about the sharp rally on June 10, KPowernet replied that although it could not explain the price movement, it hinted that a certain substantial shareholder and a director of the company were negotiating and finalising an agreement to dispose of their shares to a potential buyer could be probable triggers.
A Bursa Malaysia announcement on June 24 disclosed that SSF had disposed of its entire 10.99% stake off market. Assuming that the stock was transacted at the closing price of 92 sen on Jan 20, SSF’s stake in KPowernet was worth RM7.7 million.
Lee, the elder brother of former national shuttler Datuk Lee Chong Wei, sold his entire 8.96% stake on the same day for RM6.3 million. Meanwhile, Fong Wai @ Foong Kai Ming, another independent non-executive director of KPowernet, sold his 3.96% stake for about RM2.8 million.
The stock closed at 82 sen last Thursday, still 116% higher from 38 sen year to date, valuing the company at RM62.44 million.
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