THE newest listed firm to leap on the digital manufacturing companies (EMS) bandwagon is loss-making rooster egg producer LTKM Bhd,
The corporate has change into topic to a reverse takeover by an EMS participant referred to as Native Meeting Sdn Bhd which relies in Gelang Patah, Johor.
Native Meeting was arrange in 2000 and manufactures digital, electrical and plastic injection molded parts and its primary enterprise comes from three multinational corporations situated in Singapore and Malaysia.
The query is, is LTKM moving into the sport too late?
EMS shares have been all the craze not too way back.
Shares like VS Business Bhd
and SKP Sources Bhd had hit file highs from mid-2020 to late 2021.
Nevertheless a mix of plant shutdowns because of the Covid-19 pandemic, labor shortages and provide chain disruptions has turned some traders away from EMS shares.
Tech shares are additionally going out of favor globally, with the Nasdaq composite index down some 16% 12 months up to now.
Issues over larger rates of interest and rising inflation have nudged some traders to drop extra dangerous belongings, resembling tech shares.
There are additionally environmental, social, and governance points within the EMS sector, with issues of labor points working foul of worldwide requirements and doubtlessly driving away multinational purchasers.
LTKM is proposing to amass 100% of Native Assemby at a worth of RM336mil, to be paid by RM100mil in money and 393.33 million new LTKM shares at a problem worth of 60 sen every.
On a constructive observe, Native Meeting has reported some spectacular numbers.
Its income grew from RM65.6mil in its monetary 12 months ended Dec 31, 2019 (FY19) to RM78.9mil in FY20, and to RM116.35mil in FY21.
Revenue after tax grew from RM7.9mil in FY19, to RM14.2mil in FY20, and to RM20.06mil in FY21.
The corporate has no debt and loved a internet revenue margin of 17.2% in FY21.
The co-founders of Native Meeting, Chai Voon Solar, Gurmakh Singh Ajmer Singh and Wee Thian Track, who will change into the controlling shareholders of LTKM, have offered revenue ensures underneath the proposed acquisition.
The revenue assure entails a minimal revenue after tax of RM28mil for FY22 or not lower than a mixed RM50mil revenue after tax for each FY22 and FY23.
When it comes to valuation, Native Meeting is being acquired at a price-to-earnings (PE)ratio of 16.8 occasions its FY21 revenue after tax.
Considering the revenue assure, the valuation of Native Meeting works out to 13.4 occasions based mostly on the common revenue after tax of RM25mil, based on LTKM’s submitting.
High EMS gamers VS Business Bhd and SKP Sources Bhd commerce at historic PEs of 15 occasions at the moment.
Therefore the deal appears to be benchmarked on these firms, though it is not clear if Native Meeting is as superior as VS and SKP, when it comes to its technological patents and progressive processes.
LTKM have but to answer to questions from StarBizWeek.
Apparently, a recognized company persona is within the image as a shareholder of Native Meeting.
Datuk Seri Chiau Beng Teik and his son Chiau Haw Choon personal 20% of Native Meeting and can find yourself with a stake in LTKM following the reverse takeover.
Chaiu and his son are often known as the homeowners of Chin Hin Group Property Bhd,
There have been additionally pre-initial public providing traders in photo voltaic power resolution supplier Solarvest Holdings Bhd that listed on the ACE Market in November 2019.
To recap, different elements of the company train being proposed by LTKM entails the main shareholder shopping for again the loss-making egg enterprise from the listed firm, a capital compensation to LTKM shareholders of RM1.11 per share (which is able to finance the main proprietor in shopping for again the egg enterprise) and a restricted provide on the market of 230 million LTKM shares at 60 sen a bit to boost some RM138mil.
There will even be a consolidation of two current LTKM shares into one share.
The corporate’s identify shall be modified to LA Know-how Bhd.
LTKM’s shares closed at RM1.40 yesterday, giving it a market capitalization of RM200mil.
LTKM govt chairman Datuk Tan Kok and his household have indicated that they’d step down as administrators of LTKM upon the completion of the proposals, to focus on managing the poultry enterprise.
He stated the proposed disposal got here amid a difficult working panorama that has impacted the corporate’s skill to pay dividends over the previous two monetary years.
The challenges to the poultry trade, he stated, included overcapacity, decrease common promoting worth of eggs, excessive uncooked materials costs and issue in controlling illness outbreaks.
“At its core, the proposals search to reward our shareholders from the proceeds of the disposal of the corporate’s current poultry enterprise whereas on the identical time, enable them to proceed taking part within the new EMS enterprise,” he stated.
In a submitting with Bursa Malaysia, based mostly on a examine by Protege Associates Sdn Bhd, LTKM identified that the EMS market in Malaysia is predicted to proceed to develop, supported by the rising adoption of digital content material and a longtime electronics cluster in Malaysia offering a large and prepared end-user market.
Nevertheless, the examine additionally famous that on the flip facet, the short-term buy dedication from clients in addition to lowered lead-time in orders could pose a problem to EMS gamers because of the uncertainty within the quantity and timing of gross sales, resulting in EMS market gamers being unable to maximise using manufacturing capacities.
The examine stated transferring ahead, exports {of electrical} and electronics merchandise are anticipated to proceed rising from an estimated RM499bil in 2022 to RM685.2bil in 2026 at a compounded annual progress fee of 8.5%.