KUALA LUMPUR (July 13): Loss-making Sanbumi Holdings Bhd, which is primarily involved in the provision of in-bound and out-bound tours and ticketing services — among other hospitality services — plans to diversify into property development to reduce its dependency on its existing tourism-related business.

In a filing with Bursa Malaysia today, Sanbumi proposes to develop a mixed development comprising a 37-storey serviced apartment (436 units), a nine-storey podium of shops, car parks and other facilities on a freehold land measuring 70,988 sq ft, located along Jalan Rozhan in Bukit Mertajam, Pulau Pinang.

The development, said Sanbumi (fundamental: 1.65; valuation: 0.9), is expected to carry approximately RM240 million in gross development value with an estimated development cost of RM180 million.

It targets to commence construction in the second quarter (2Q) of 2016 and to complete the project in four years.

“Through the proposed development, the group would be able to unlock the potential value of its investment in the land and to redeploy it for the group's proposed new business venture," said Sanbumi.

It expects the new business to contribute more than 25% of the group's net profits in the future.

It intends to part finance the project via a private placement to raise RM7.05 million — based on an indicative price of 13.5 sen a share, which it intends to undertake after a proposed par value reduction to cancel out 90 sen from the RM1 par value of each existing share.

Specifically, it intends to cancel all its treasury shares, which will reduce its issued and paid-up share capital to RM189.24 million comprising 189.24 million shares — including 15.1 million treasury shares — to RM174.13 million with 174.13 million shares.

The proposed par value reduction will give rise to a credit of RM156.72 million, which it said will be used to offset the company’s accumulated losses, which stood at RM105.84 million as at March 31, 2015. The group will see a retained profit of RM50.88 million upon execution of the proposal.

Subsequently, Sanbumi will embark on a private placement, which entails the issuance of up to 52.24 million new shares, representing 30% of its total issued and paid-up share capital.

Up to 34.82 million placement shares representing about 20% of Sanbumi’s issued and paid-up share capital shall be placed out to its directors and substantial shareholders Datuk Chua Tiong Moon and Tan Sri Chai Kin Kong (10% or 17.41 million shares each).

The remaining 10% or 17.41 million placement shares shall be placed out to third party investors.

“For clarity, the placement shares which are allocated to third party investors are not intended to be placed out to the directors, major shareholders or chief executive of Sanbumi and/or persons connected with them," it said.

The issue price, said Sanbumi, may be at a discount, equivalent price or a premium to the five-day volume weighted average market price (5-VWAMP) of its shares prior to the price-fixing date but not lower than 10 sen apiece being the par value of the shares.

Based on an indicative issue price of 13.5 sen and assuming all placement shares are placed out, Sanbumi expects to raise RM7.05 million, of which RM1.75 million will be for working capital, RM5 million for the funding of the proposed development, with the remainder for estimated expenses related to the corporate exercises.

It noted that its share base will leap to 226.37 million shares from 174.13 million shares (post par value reduction) upon the completion of the private placement.

"Barring any unforeseen circumstances, the proposals are expected to be completed by the fourth quarter of 2015," it added.

All the above proposals will be subject to its shareholders' approval at an extraordinary general meeting to be convened.

Sanbumi shares, which was trading as high as RM20 in 1996, has plunged to a record low of 13 sen on July 9 and closed unchanged today for a market capitalisation of RM22.64 million. Year-to-date, it has fallen 23.53%.

(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.)