KUALA LUMPUR (April 23): Sinotop Holdings Bhd's major shareholder Datuk Justin Soo Sze Ching plans to inject his construction company into the group in line with its strategic plan to expand and strengthen its infrastructure construction business to further enhance the group’s earnings.

In a filing with Bursa Malaysia today, Sinotop said it has today entered into a conditional share sale agreement with Soo for the proposed acquisition of Asianmax Corp Sdn Bhd for RM96 million. 

The proposed acquisition is deemed a related party transaction in view that Soo is an executive director and holds a 15.19% stake in Sinotop.

This follows an announcement by Sinotop on April 1 that it had accepted a letter of offer from Soo for the proposed acquisition. However, the proposed transaction excludes Johnson Fluid Engineering Sdn Bhd, an existing subsidiary of Asianmax.

The proposed acquisition will be satisfied via RM14.4 million cash, RM7.7 million via the issuance of 28.52 million new shares at an issue price of 27 sen per share and RM73.9 million via the issuance of 273.7 million new irredeemable convertible preference shares (ICPS) at an issue price of 27 sen a piece.

The issue price of 27 sen each represents a 1.5% discount to the five-day volume weighted average market price (VWAP) of Sinotop shares of 27.41 sen up to March 28, 2019.

The ICPS will be issued at 27 sen each with a conversion ratio of one ICPS to one Sinotop share. The issue price and the conversion price of the ICPS represents a 1.5% discount of 0.41 sen to the five-day VWAP of Sinotop shares up to March 28, 2019.

Sinotop said the acquisition comes with a profit guarantee that the aggregate net profit of Asianmax for the two financial years ending June 30, 2020 and 2021 will not be less than RM24 million, which will be secured by 88.89 million ICPS to be provided by Soo. This translates to an implied price to earnings ratio of 8 times.

"The cash consideration for the proposed acquisition will be funded by internal funds, bank borrowings and/or proceeds from the proposed disposal of its foreign assets," it added.

BDO Capital Consultants Sdn Bhd has been appointed by Sinotop as the independent adviser to advise the non-interested directors and shareholders on the fairness and reasonableness of the proposed acquisition, which is expected to be completed in the third quarter of 2019.

Trading in Sinotop shares was suspended today pending the announcement. It last closed at 27.5 sen, bringing a market capitalisation of RM108.6 million.