CONSTRUCTION outfit Setiakon Builders Sdn Bhd is seeking a listed shell as its golden ticket to the equity market, say sources.
With an increasing number of companies with low market capitalisation struggling to either perform well in their current business or find fresh funds, the list of available shells is growing. This is making reverse takeovers (RTOs) more popular, as in the case of Goh Ban Huat Bhd, Symphony House Bhd and Sunsuria Bhd.
Sources say Setiakon Builders approached a few companies, including Takaso Resources Bhd, but found none of them suitable for its purpose. “Setiakon is a good construction outfit … there is no urgency for an RTO. The company is taking its time to make sure it gets the right candidate,” says a source.
Setiakon Builders, previously known as Kidmat Builders Sdn Bhd, is involved in building construction, civil engineering, labour supply for the construction industry and investment holding.
It is controlled by its directors Datuk Kuan Ah Hock with a 31.7% stake and Tan Tong Kwee (22.2%). Other substantial shareholders include Tee Gan Ting (16.7%), Tee Kian Chon (16.7%) and Tan Juinn Siong (11.1%).
Setiakon Builders is possibly looking to incorporate the group, which comprises Setiakon Construction Sdn Bhd, Setiakon Engineering Sdn Bhd and Setiakon Holding Sdn Bhd.
Filings with the Companies Commission of Malaysia reveal that Setiakon Builders fared well in its financial years 2011 and 2012 ended Dec 31.
In FY2012, its net profit nearly doubled to RM2.5 million from RM1.5 million in FY2011. Revenue tripled to RM208.6 million from RM61.7 million previously while earnings per share rose to 62 sen from 51 sen. Net assets increased 18.7% year on year to RM15.9 million.
Setiakon Builders has interests in other companies as well, wholly owning Kah Enterprise Sdn Bhd and 70% of N.S. Construction-SetiakonBuilders JV Sdn Bhd. It controls 30% of Setiakon Construction, Setiakon Engineering and Setiakon Holding.
In FY2012, Setiakon Construction’s net profit nearly hit the RM1 million mark, rising to RM954,641 from RM26,903 in FY2011. Revenue expanded to RM102.3 million from RM4.8 million while net assets grew to RM2 million from RM26,906 previously.
The major shareholders of Setiakon Construction include Francis Peter Terrance and Chew Swee Kang with a 35% stake each, and Setiakon Builders with 30%.
Having done several projects for multinational building and infrastructure contractor Econwin Group, Setiakon Builders has already built a name for itself in the construction industry.
The projects include a RM500,000 job to build shear walls and a jump form system for the proposed construction of government apartments in Precinct 11, Putrajaya, and a RM200,000 contract to provide a pile cap, column and beam system for the completion of substructure works at the Manjung Power Station in Perak.
The construction outfit also secured a RM2 million contract to provide a tunnel form system for civil works for the proposed construction of a 4km common utility trench in Precinct 4, Putrajaya, through a joint venture with Nescon.
In a typical RTO exercise, a private company injects its core business into a public listed entity in exchange for a substantial, if not controlling, stake. An RTO is often preferred to a new listing because companies can cut listing expenses while the procedure is slightly faster.
Sources say Setiakon Builders once considered Takaso Resources, a loss-making baby care accessories and condom manufacturer, for an RTO but negotiations fell through at the preliminary stage after its shareholders found that Takaso did not fit the bill.
Still, news of Takaso being a possible RTO target saw its share price spike to a two-year high.
The stock, which was trading at an average of 25 sen, jumped 90% to 47.5 sen on Sept 10 from Aug 1. It closed at 45 sen last Thursday.
Takaso sank deeper into the red in its third quarter ended April 30. Net loss widened to RM840,000 from RM508,000 in the previous corresponding period, although revenue grew to RM8.8 million from RM7.6 million.
The controlling shareholders of construction firm Pesona Metro Holdings emerged as Takaso’s largest shareholders in August. Pesona Metro’s founder and managing director Wie Hock Beng and director Wie Hock Kiong had been accumulating shares in Takaso since Aug 12 and held a 20.04% stake.
Before the Wie brothers entered the picture, Takaso’s largest shareholder was its executive chairman and managing director Tee Tze Chern, who held a 15.55% stake.
The sudden interest in the previously thinly traded stock led to an unusual market activity query from Bursa Malaysia, but Takaso replied that it was not aware of any rumour or material information that might have caused the rally in its share price, apart from the change in its substantial shareholders.
This article first appeared in The Edge Malaysia Weekly, on September 22-28, 2014.