What’s happening at BTM Resources

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EYEBROWS were raised when loss-making timber counter BTM Resources Bhd’s share price surge 30% last Thursday, with more than half its total issued shares being traded. The company was red-flagged by Edge Research on the same day.

About 64.75 million shares, or 53% of the total issued, were traded that day, causing the stock to surge 30% to close at 26 sen. Another 20.1 million shares change hands on Friday with the price easing marginally to close at 25.5 sen.

Why the sudden interest in a company that has been loss-making for the past 13 years and not seen a change in management and controlling shareholders?

BTM was listed in March 1996 and started making losses in 2001. Last year, its net loss narrowed to RM716,000, compared with RM2.1 million in 2012, while revenue rose 68.75% to RM7.83 million from RM4.64 million in 2012.

It should be noted that retail investors were not the only ones that were excited by the company. Existing shareholders of the company appeared bullish too, if the response to its recently completed fundraising exercise is any indication.

In its recently completed rights-cum-free warrants issue, the company saw an oversubscription rate of 20.85%, a major feat considering its financial track record.    

The rights issue was on a two-for-one basis at 20 sen per share, sweetened by free new detachable warrants on the basis of four new warrants for every 10 rights shares subscribed. The 10-year warrants carried an exercise price of 20 sen.

At the same time, the company proposed a par value reduction involving the cancellation of 80 sen of the par value of each ordinary share of RM1 each in BTM.

On Oct 29, these new securities, comprising 81.47 million new rights shares and 32.59 million warrants, were listed. Interestingly, BTM’s shares surged soon after.

This has led to concerns about whether the recent rally might be used by certain market players to “ramp” the share price and exit with a profit.

Each shareholder who subscribed for the rights exercise would have parted with 20 sen for one new rights share together with 0.4 free warrant.

At Friday’s closing price of 25.5 sen for the stock and 16 sen for the warrant, that investment would be worth a total of 31.9 sen, or a 60% return in just over a month (the stock traded ex for the rights issue on Sept 25).  

Interestingly, this is not the first time that this has happened. In 2009, the company made a rights issue involving 9.32 million new shares and 18.63 million warrants, which listed on Dec 29 that year. The stock rose in active trading in early January. But from 45.5 sen on Jan 4, it nosedived 72.93% later in the year to a low of 12.3 sen on Oct 19.

Although the company had carried out similar fundraising exercises before, little improvement has been seen in the company, judging from its financial performance over the past 14 years.

In the 2009 rights issue, the company raised RM9.32 million with the intention to fund its working capital and repay debts.

What is more intriguing, Securities Commission Malaysia had through its letter dated Feb 27, 2008, rejected the appeal for a rights issue proposed by the company on Oct 20, 2006.  

In the 1990s, the group had proposed a rights issue of 29.99 million new shares of RM1 each on the basis of three rights shares for every two existing ordinary shares held in BTM. This was to raise about RM30 million.  

However, in January 2001, more than a year after the proposal of the rights issue came about, the group aborted the exercise “due to the unfavourable market conditions”.

For the current fundraising exercise, BTM said in its prospectus dated Sept 29 that it expected to raise gross proceeds of up to RM23.75 million, which will be used for working capital requirements, repayment of borrowings and payment of estimated expenses in relation to the corporate exercise.

It is noteworthy that BTM had suspended its logging and sawmilling activities. It completely ceased its letting of plant and machineries business, according to its Sept 29 abridged prospectus. It is also proposing to dispose of a woodwaste-fired cogeneration system to Khas Promosi Sdn Bhd for RM4.2 million.

Interestingly, although the company has been bleeding for many years, it was paying its directors more even as revenue fell. BTM has paid its directors and non-executive directors at the company and subsidiary levels a total of RM4.03 million over the past five years.

Over the same period, BTM registered revenue of RM46.12 million, which means the directors’ salaries were roughly 8% of its revenue (see table). Directors’ remuneration totalled RM847,740 in 2013, up almost  50% from RM570,630 in 2009.

According to its 2013 annual report, the Yong family headed by managing director Datuk Seri Yong Tu Sang owned a 28.18% stake in the company while Tan Sri Datuk Mohd Hussin Abdul Hamid held a stake of 7.04%.

Datuk Seri Yong Tu Sang’s son Yong Hin Siong is executive director of BTM while daughter Yong Emmy is a non-executive director. Another daughter, Yong Ellen, is a non-executive alternate director to Yong Emmy.

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This article first appeared in The Edge Malaysia Weekly, on November 10 - 16, 2014.