NEXT month, Tan Sri Wan Azmi Hamzah’s 74.8%-owned Rohas-Euco Holdings Sdn Bhd is expected to complete its reverse takeover (RTO) of Tecnic Group Bhd. This will mark the return of the prominent businessman and Rohas-Euco Industries Bhd (REI) — which Wan Azmi took private in 2007 — to the local bourse.

The new entity, to be renamed Rohas Tecnic Bhd, hopes a public listing will help it secure more international projects. But Rohas-Euco will first need to pare down its stake in Rohas Tecnic, from 88.7% to to 75%, to meet the shareholding spread of 25% in order to maintain its listing status.

“We will go through some private placement and our investment bankers will propose some placees, institutions, individuals or corporate investors. We have two placement agents ... we were told there is strong demand for the shares. But our mandate is for them to find long-term shareholders,” REI managing director George B.C. Chia tells The Edge in an interview.

Independent adviser Mercury Securities Sdn Bhd had in a report last week advised Tecnic’s minority shareholders to reject Rohas-Euco’s mandatory takeover offer as the offer price of 63 sen is not fair and reasonable.

Based on the discounted cash flow valuation method, Mercury derived the fair value for Tecnic at between RM250.43 million and RM271.77 million, or 70 sen to 76 sen per share. However, the offer price is 10% to 17% below that.

Recall that Tecnic announced the proposed RTO by Rohas-Euco in 2015. The RTO will see the sale of the entire equity interest in REI to Tecnic for RM200 million, to be satisfied by the issuance of 317.5 million new shares in Tecnic at 63 sen per share.

REI is principally involved in the fabrication of steel towers for power transmission and telecommunications. As Rohas-Euco will end up owning an 88.7% stake in Tecnic, this triggered a mandatory general offer for the remaining shares it does not own in Tecnic.

Wan Azmi and his wife Puan Sri Nik Anida will emerge as the largest shareholders in Rohas Tecnic with a collective 66.36% interest. Wan Azmi will also become the group’s non-independent non-executive chairman.

The deal implies a price-earnings ratio of 8.88 times for REI, according to Chia, who sees the independent report as recognition that there is more value in REI. He hopes minority shareholders will stay on.

Note that Tecnic’s former executive chairman Datuk Gan Kim Huat and his family will still hold 6.5% in Rohas Tecnic.

Rohas Tecnic will also raise RM26.46 million through the issue of 42 million new shares under the RTO and regularisation plan. Most of the proceeds will be used to expand the group’s business in three areas — energy, telecommunications and water.

“Our international market is relatively small at this point. For the past few years, we have been focusing on the domestic business and now, we are talking about how we will expand our overseas markets,” says REI CEO Leong Wai Yuan.

He notes that 80% of the group’s revenue comes from the domestic market and hopes to increase the overseas business contribution to 50% in the next three to five years.

“It is not difficult to achieve [that] as after listing, we will be able to bid for more foreign jobs.” The group is bidding for more than RM500 million worth of infrastructure projects, up to 60% of which are overseas, he says.

The group’s current focus is mainly the Southeast Asian market, including Laos, Myanmar, Indonesia and the Philippines. REI supplies telecommunication towers to Myanmar, which is the biggest contributor in terms of overseas revenue.

“There are markets like Africa we have not been to,” Leong says, adding that the group is also looking at Bangladesh. REI is also looking at another tie-up with a local partner for a mini hydro plant in Indonesia.

REI ventured into developing a 7mw mini hydro plant in Lawe Sikap, Aceh, in 2015. Leong says it has already got a power purchase agreement, and will start construction of the plant later this year.

“It will take about 1½ year to complete. Hopefully, we can finish it next year and it will thus only contribute to the group’s earnings at the end of next year at the earliest,” he says.

He sees potential in the developing markets where the demand for telecommunications and power networks is growing.

Acknowledging that the local market is quite mature, Leong is confident the group can do better, supported by its two major clients, Tenaga Nasional Bhd (TNB) and Sarawak Energy Bhd.

Both companies are expected to improve their inter-connectivity in the peninsula and Sarawak, and the group is likely to secure significant jobs from them.

REI’s order book currently stands at RM160 million, which will ensure earnings visibility for the next 1½ years.

For the financial year ended Dec 31, 2015 (FY2015), REI posted revenue of RM155.23 million. Fabrication of steel towers — mainly for power transmission and telecommunications — accounted for 95.8% of total revenue.

REI recorded a net profit of RM22.13 million in FY2015, compared with RM21.92 million in FY2014. For the first half ended June 30, 2016, net profit rose 61.12% to RM6.25 million, from RM3.88 million the previous year, due to a more favourable mix of monopole tower sales.

“The earnings driver will be the expansion of the top line, mainly because we are going overseas for different projects in our three core areas, and this will contribute directly to our bottom line,” Leong says. The company, he adds, has an edge as it has fabrication and galvanising plants, which most of its rivals do not have.

Tecnic, which manufactured plastic products and precision moulds, was classified as a Practice Note 16 company in July 2015 after selling the plastic business to SKP Resources Bhd.

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