KUALA LUMPUR (Oct 2): Pelangi Publishing Group Bhd’s controlling shareholders have proposed to the board to undertake a capital repayment scheme in order to privatise the school textbook publication firm.

The controlling shareholder, Datuk Sum Kown Cheek, who is also the company’s executive chairman and managing director, has written to Pelangi’s board of directors to notify his intention to take the company private via capital repayment of 36.5 sen per share, according to the bourse filing.

Sum together with his wife Datin Lai Swee Chiung plus parties acting in concert, Datuk Sam Yuen, who is Sum’s brother, and his spouse Datin Goh Pek Hen, collectively own 37.53 million shares or a 38.86% stake in Pelangi.

The 36.5 sen capital payment represents a 32.39% to 40.38% premium over its one-year, six-month, three-month, one-month, five-day volume weighted average price (VWAP) and yesterday’s closing price. The stock was last traded at 26 sen.

The capital repayment will cost RM25.03 million. As at June 30, Pelangi’s cash balance stood at RM9.11 million plus short term investment of RM2.61 million. The repayment scheme will be funded by bank borrowings and internally-generated funds.

Sum and Lai noted that the capital repayment scheme will provide minority shareholders an exit from the publication business that has a gloomy outlook at premium price.

The duo observed that Pelangi has been facing declining profits, as well as challenges given that declining usage of workbooks in schools as a result of government policy. On top of this, COVID-19 movement restrictions in the UK, Malaysia, Indonesia, and Thailand have hampered the movement of goods and services.

Furthermore, the implementation of the Movement Control Order (MCO) in Malaysia negatively impacted the group as a lower retail footfall heavily weighed on its revenue.

“In addition, schools in Malaysia are currently operating under strict rules and public examinations such as Ujian Pencapaian Sekolah Rendah (UPSR) and Pentaksiran Tingkatan Tiga (PT3) have been cancelled this year.

“The possibility of public examinations such as UPSR and PT3 being cancelled permanently in the future further reduces sales potential of examination-related sales products, of which historically contributed significantly to the Pelangi Group’s revenue.

Due to the competitive environment as well as global and local economic uncertainties, we believe that the operating environment for Pelangi Group will be challenging in the near future and its financial performance will remain weak,” the duo explained in the letter.

In terms of its financial performance, the group's net profit has been shrinking in the past six financial years. For the financial year ended Sept 30, 2004, the company posted a net profit of RM4.69 million, and since then its earnings has been below that level. For FY19, its net profit came in at RM1.66 million, RM473,000 in FY18 and RM3.01 million in FY17.

Revenue has yet to exceed the RM74.14 million posted in FY17, with its FY19 revenue standing at RM68.57 million.

On top of that, Pelangi’s trading liquidity has been very low. Its three-year average daily trading volume was 4,997 shares — representing 0.01% of its 51.63 million free float shares.

The company’s board has until Nov 2 to deliberate on the proposal.