MANY may not be aware that Scanwolf Corp Bhd, which has initiated investigation into possible irregularities in its property operation, is embroiled in a long-running shareholder fight.

Scanwolf (fundamental: 0.75; valuation: 0.3) is an Ipoh-based home and kitchen fittings manufacturer that ventured into property development in 2011. The loss-making company has seen a number of changes in its shareholding as well as boardroom reshuffles since August last year. It is now in the limelight, but for the wrong reasons.

On April 23, the board led by managing director Datuk Ch’ng Kong San appointed PKF Covenant to conduct an investigative review of its operation due to “insufficient measures, severe discrepancies and possible irregularities” in the implementation of its development projects. The full review is expected to be completed within eight weeks.

Scanwolf said the findings, which were discovered during a review of the management, had caused the board of directors to become concerned about possible lapses in corporate governance in the affected projects and other activities of the group.

At press time, The Edge was unable to contact the spokesperson of Scanwolf, while the group’s financial controller Ng Chee Wai did not reply to an email enquiry.

Some corporate observers say the advances granted to subsidiaries could be one of the reasons Scanwolf is being investigated.

As at March 31 last year, the amount owing by subsidiaries was RM17.25 million at the company level, which made up 44% of its total assets worth RM39.51 million. In comparison, Scanwolf has a market capitalisation of RM53.87 million.

Interestingly, news on the investigative review were released after a new substantial shareholder, Yii Long Ging, emerged with a 6.65% stake.

Adding a new twist to events is Yii — together with two other shareholders, namely Cedric Wong King Ti and Abdul Hamid Abdul Shukor — calling for an extraordinary general meeting on May 13 to remove the company’s managing director as well as chairman Chang Nyen Wee and independent non-executive director Chua Kiat Eng.

The three shareholders want to appoint Mua’amar Ghadafi Jamal Jamaludin, William Wong King Nguong and Abdul Hamid as independent non-executive directors.

Last week, Chang and Chua resigned from their positions, while Dr Loh Kai Kwong, Tan Weng Chuan, Teh Hock Leng and Umair Azura Zakaria were appointed as independent directors.

Ch’ng, however, remains as managing director of Scanwolf. Now, it is left to be seen what Yii’s next move will be to put his own men on the board.

To recap, Chang emerged as the single largest shareholder of Scanwolf on Aug 8 last year after acquiring a 26.54% stake from former CEO Datuk Loo Bin Keong and executive director Datuk Tan Sin Keat at 50 sen per share, or RM10 million in total.

Subsequently, three directors resigned at end-August and were replaced by Chang, Chua and Soon Eng Kooi after Chang become a substantial shareholder. A month later, another director, Datuk Lai Kok Heng, resigned.

Last November, Ch’ng emerged as a substantial shareholder with a 10% stake from a private placement and joined the board. He is now the second largest shareholder of the company.

Loo, who sold shares to Chang, resigned from the board but still has a 7.71% stake in Scanwolf.

It is noteworthy that Bursa Malaysia issued an unusual market activity query to Scanwolf in January this year, after the stock rocketed from 55 sen to RM1 in a short span of two weeks. Around this time, Yii bought a 5.89% stake on the open market. He later raised his stake to 6.65%.

For the nine months ended Dec 31, 2014 (9MFY2015), Scanwolf generated revenue of RM38.9 million and made a net loss of RM1.8 million.

Its manufacturing segment, which produces plastic extrusions and polyvinyl chloride (PVC) compounding, as well as processes PVC coils for home and office fittings, contributed 63% to the group’s revenue and reported a loss before tax of RM1.9 million.

Meanwhile, the property division, which posted a marginal profit before tax of RM775,000, has two flagship development projects — Kampar Putra and Taman Harmoni in Perak.

The RM180 million Kampar Putra township project is located on 59 acres of leasehold land. It is in the vicinity of Kampar and located near Universiti Tunku Abdul Rahman and Kolej Tunku Abdul Rahman.

Meanwhile, the Taman Harmoni project in Bidor that offers a mix of residential and commercial properties carries a gross development value of RM27 million.

For the financial year ended March 31, 2014 (FY2014), both projects achieved sales of RM14.9 million compared with RM7.5 million a year ago.

The Kampar Putra project was undertaken by Scanwolf Properties Sdn Bhd in a joint venture with Almal Development (M) Sdn Bhd in May 2011.

The Taman Harmoni project was a JV between Scanwolf Development Sdn Bhd (SDSB) and SQ Land Sdn Bhd in January 2012. Back then, SDSB was a 51%-owned unit of Scanwolf through Scanwolf Properties.

Scanwolf Properties acquired 511 vacant plots in Kampar in February 2012 for RM13 million, paving the way for the Kampar Putra II project.

Three years later, Scanwolf Properties, being the landowner, revised its entitlement in the Kampar Putra II project to 60% from 20%, before buying the remaining 49% stake it does not own in SDSB from Extra Modulation Sdn Bhd.

The reason for the change in entitlement was that Scanwolf Properties had been continually funding the development cost of the project, although developer SDSB was supposed to do so, as stated in the JV agreement.

Extra Modulation’s single largest shareholder is Lai, who is a former director in SDSB. Another shareholder of Extra Modulation, Vincent Hooi Wy-Hon, is also a substantial shareholders of Scanwolf. Meanwhile, Loo is a former director in both Scanwolf Properties and SDSB.

Currently, three directors of Scanwolf, namely Ch’ng, Soon and Sin Keat, as well as financial controller Ng, sit on the boards of the two property subsidiaries.

The share price of Scanwolf has fallen 40% from its peak of RM1.05 in January. The stock plunged 23% from 81 sen on April 23 to settle at 62.5 sen last Wednesday following the news on the investigative review by PKF Covenant.

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. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on May 4 - 10, 2015.

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