KUALA LUMPUR (Jan 6): Techfast Holdings Bhd plans to diversify into petroleum trading and oil bunkering by acquiring a 35% stake in a company that supplies marine fuels.

The group said it is buying the stake in CCK Petroleum Sdn Bhd from Kuah Choon Ching for RM26.25 million, of which RM16.17 million will be paid in cash and the balance via the issuance of 23.44 new Techfast shares at 43 sen per share.

In a filing today, Techfast said the diversification into petroleum trading was aimed at expanding its revenue and profits, and reducing its reliance on its manufacturing business segment.

The group manufactures self-clinching fasteners, mould e-learning rubber sheets and LED epoxy encapsulate materials.

Techfast said it expects the petroleum trading business to contribute more than 25% of its net profits.

The group said CCK Petroleum posted a profit after tax of RM969,282 for the year ended Dec 31, 2019 (FY19). For FY17 and FY18, it had posted net losses of RM115,812 and RM379.32 million respectively.

It added that Kuah has issued a profit guarantee of RM10 million for CCK Petroleum in FY21 and FY22.

“The total profit attributable to Techfast is RM3.5 million, which translates into a yearly profit guarantee of RM1.75 million for each of the aforesaid financial years, calculated based on the 35% equity interest of CCK Petroleum to be acquired by Techfast.

“Therefore, the purchase consideration represents a price-to-earnings multiple of 15 times based on the yearly profit guarantee attributable to Techfast,” said Techfast.

In its filing, Techfast also announced a private placement of 75.29 million shares or 30% of its total share capital to raise RM28.23 million.

Of this sum, RM16.17 million will be used to pay for the cash portion of the CCK Petroleum stake purchase price, and RM11.69 million for working capital needs of the new business.

Techfast also announced that it was undertaking an employee share option scheme for its employees.

Assuming all the share issuances are allowed, the group’s share capital will increase to 454.6 million shares, from 250.96 million currently.

The proposals are expected to be completed in the first quarter of 2021, the group said.

Shares in Techfast finished 3.26% or 1.5 sen lower at 44.5 sen, valuing the group at RM111.68 million. The counter saw 15.51 million shares traded.