KUALA LUMPUR (June 11): Eng Teknologi Holdings Bhd (Engtek) shareholders will vote tomorrow whether to sell off the company’s hard disk drive (HDD) manufacturing business for cash up front, or to wait for it to recover from the damage caused by last year’s massive Thai floods.
The offer to privatise the company will be presented to shareholders at tomorrow’s EGM. It will test TKY Capital Sdn Bhd’s takeover bid, which cut its offer price to RM2 per share from RM2.50 per share initially.
TKY Capital is paying RM244.01 million cash, which is equivalent to RM2 per share, to acquire Engtek’s assets and liabilities.
Under the proposal, the cash proceeds from the takeover will be distributed back to existing shareholders and the company will then be delisted from Bursa Malaysia.
“A few substantial shareholders have given their consent on the privatisation exercise when we first came out with the idea,” said Engtek CEO Datuk Teh Yong Khoon, who is the major shareholder in TKY Capital.
The proposed divestment plan was first announced last July. The initial plan valued the HDD business at RM2.50 per share at that time. But the offer price was revised downward to RM2 per share because of problems raising the necessary financing.
With the 20% difference on the offer price, it is unknown whether the substantial shareholders will still support the proposed divestment plan.
Permodalan Nasional Bhd is the second largest shareholder with 14.37% after TKY Capital. Lembaga Tabung Haji holds 8.28% in Engtek.
Engtek dipped into the red for the financial year ended Dec 31, 2011, incurring net loss of RM 42.6 million or 35.3 sen per share, compared with net profit of RM49.1 million or 40 sen per share a year ago. The losses were the first since FY02. The company remained profitable even at the peak of financial crisis in 2008.
The company’s 1QFY12 revenue declined to RM102.9 million from RM120.2 million in the previous corresponding period as its Thai operation has yet to recover its full capacity. However, its net profit was at RM16.8 million, more than three times the RM4.79 million posted in the previous corresponding period, due mainly to insurance proceeds received and derivative gains amounting to RM15.2 million.
Excluding the one-off gain of RM15.2 million, Engtek would have made pre-tax profit of barely RM2.7 million against RM5.58 million the year before.
“We will only be able to fully recover to the pre-flood level by year-end. The insurance claim will only be enough to replace the machinery that was damaged by the flood,” Teh said when contacted.
“On top of that, we will have to spend an additional RM40 million to RM42 million for new capacity,” he added, stressing that Engtek has to bear the replacement cost for the plant machinery in Thailand and the revenue loss during the period.
However, some quarters see that TKY Capital would have to pay a lot more for Engtek had its Thai operations returned to normal.
The company has written off some RM40 million losses caused by the Thai floods. The provision to a large extent had dented Engtek’s financials, but the company is expected to recover the amount from insurance claims, said a fund manager, adding that Engtek is in a net cash position of RM72.3 million or 58.8 sen per share.
This article appeared in The Edge Financial Daily, June 11, 2012.