CHIN WELL HOLDINGS BERHAD ("CHIN WELL" OR THE "COMPANY")

CHIN WELL HOLDINGS BERHAD ("CHIN WELL" OR THE "COMPANY")
PROPOSED ACQUISITION BY CHIN WELL OF TWO (2) ORDINARY SHARES OF USD1.00 EACH
IN ASIA ANGEL HOLDINGS LIMITED ("ASIA ANGEL"), REPRESENTING 100% EQUITY
INTEREST IN ASIA ANGEL FROM CHEN YIN-LIANG AND CHUA WEI FENG FOR A TOTAL
PURCHASE CONSIDERATION OF RM47,459,617 TO BE FULLY SATISFIED VIA A
COMBINATION OF THE ISSUANCE OF ORDINARY SHARES OF RM0.50 EACH IN CHIN WELL
AND CASH ("PROPOSED ACQUISITION")
The terms used herein, unless the context otherwise stated, bear the same meaning as those defined
in the earlier announcement dated 5 November 2014 in relation to the Proposed Acquisition
("Previous Announcement").
In response to Bursa Securities' letter dated 6 November 2014, the additional information requested is
set out below:1.
Further detailed justification, other than willing-buyer willing-seller basis, on how to
arrive at the Purchase Consideration of RM47.46 million
The Purchase Consideration was arrived at on a willing-buyer willing-seller basis, after taking
into consideration the following:-
2.
i.
based on the audited PAT of CW Vietnam of VND142,752.10 million (equivalent to
approximately RM21.41 million), of which VND57,100.84 million (equivalent to
approximately RM8.56 million) is attributable to Chin Well for the 40% equity interest
in CW Vietnam via Asia Angel, in accordance with the latest audited financial
statements for the FYE 30 June 2014 of CW Vietnam, the Purchase Consideration
represents a historical price-to-earnings multiple of approximately 5.54 times;
ii.
the historical profit track record of CW Vietnam in view that CW Vietnam had been
recording PAT ranging between VND77,867 million (equivalent to approximately
RM11.7 million) to VND252,514 million (equivalent to approximately RM37.8 million)
for the past three (3) FYE 30 June 2014 as set out in Section 2.1 of the Previous
Announcement;
iii.
the future earnings potential of CW Vietnam in view of the generally favourable
outlook of the global fasteners industry as well as the future prospects of CW Vietnam
as set out in Section 5 of the Previous Announcement; and
iv.
the opportunity to fully recognise 100% of the PAT of CW Vietnam as a result of the
Proposed Acquisition.
An analysis of the reasonableness of the total purchase consideration based on the
Purchase Consideration of RM47.46 million plus the assumption of liability of RM44.54
million
Further to the analysis set out in Section 2.2 of the Previous Announcement and assuming
the aggregated consideration of RM92.00 million comprising the Purchase Consideration of
RM47.46 million and the assumption of liability of approximately RM44.54 million ("Total
Consideration") is assessed for its reasonableness, reference was made to the valuation
statistics of public companies listed on Bursa Securities with principal activities which are
broadly comparable to the businesses of CW Vietnam.
However, it should be noted that there is no company listed which may be considered to be
identical to CW Vietnam in terms of, inter-alia, composition of business activities, scale of
business operations, risk profile, asset base, accounting and tax policies, track record, future
prospects, competitive environment, financial positions and that such business may have
fundamentally different profitability objectives. It should also be noted that any comparison
made with respect to the comparable companies is merely to provide an indicative valuation
of CW Vietnam.
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The valuation statistics using price-to-earnings ("PE") multiple and enterprise value ("EV")/ earnings before interest, tax, depreciation and amortisation
("EBITDA") multiple are set out as follows:Comparable
companies
Tong Herr
Resources Berhad
("Tong Herr")
Based on the
latest audited
FYE
Principal activities
Market
Capitalisation
RM'million
PE
times
EV/
*2
EBITDA
times
*1
31 December
2013
Tong Herr is an investment holding company while its subsidiary companies are
principally involved in the manufacture and sale of stainless steel fasteners which
includes nuts, bolts, screws, and various other threaded items, the fabrication,
manufacture and trade of aluminum extrusion and related products.
273.05
15.52
7.82
K. Seng Seng
31 December
Corporation Berhad
2013
("K. Seng Seng")
K. Seng Seng is an investment holding company while its subsidiary companies are
principally involved in the manufacture, marketing, and processing of secondary
stainless steel flat and long products, including tubes, pipes, industrial fasteners,
sheets, and rigging accessories and components. In addition, it provides engineering
works and trades in industrial and marine hardware and consumables, as well as
various motor bearings, speed reducers, sprocket gears, belting pulleys, couplings, and
supply of construction materials, machineries, and machinery related parts.
67.20
5.10
4.37
Techfast Holdings
31 December
Berhad ("Techfast")
2013
Techfast is an investment holding and provision of management services company
while its subsidiary companies are principally involved in the manufacture and
distribution of specialised fasteners, and related precision turning and machining parts
for the electronics, telecommunication, computer peripherals, and automotive
industries, the manufacture and trade of epoxy encapsulant materials and mould
cleaning rubber sheets for optoelectronics industries, as well as provision of training
analytical and consultancy services.
24.47
33.28
3.64
High
15.52*3
7.82
Low
5.10
Simple average
ii.
5.28
5.54
4.18
10.74
7.47
10.31
CW Vietnam, based on:i.
The Purchase Consideration of RM47.46 million
The Total Consideration of RM92.00 million
(Source: S&P Capital IQ and the respective annual reports of the companies)
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3.64
*3
Notes:*1
Based on the closing market price as at the LPD where EPS is based on the audited financial statements of each company for the latest FYE available
*2
Market capitalisation in the calculation of EV is computed by multiplying the total issued and paid-up share capital (less treasury shares, if any) of each
company as at the latest FYE available with the closing market price as at the LPD while other components in EV and EBITDA are based on the audited
financial statements of each company for the latest FYE available
*3
Excluding outlier Techfast
The PE multiple of CW Vietnam of 5.54 times as implied by the Purchase Consideration is below the simple average of the PE multiple of the
comparable companies of 10.31 times and is within the range of PE of the comparable companies.
The EV/ EBITDA multiple of CW Vietnam of 4.18 times as implied by the Purchase Consideration is below the simple average of the EV/
EBITDA multiple of the comparable companies of 5.28 times and is within the range of EV/ EBITDA multiple of the comparable companies.
In addition, assuming the analysis is based on the Total Consideration, the PE multiple of CW Vietnam of 10.74 times as implied by the Total
Consideration is slightly above the simple average of the PE multiple of the comparable companies of 10.31 times and is within the range of
PE of the comparable companies.
Further, assuming the analysis is based on the Total Consideration, the EV/ EBITDA multiple of CW Vietnam of 7.47 times as implied by the
Total Consideration is above the simple average of the EV/ EBITDA multiple of the comparable companies of 5.28 times and is within the
range of EV/ EBITDA multiple of the comparable companies.
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3.
Quantification of the enterprise value ("EV") of CW Vietnam and how the market value
is derived
EV is computed as the sum of a company's market capitalisation, preferred equity, minority
interests, short and long term debt less its cash and cash equivalents.
The computation for EV for CW Vietnam based on the Purchase Consideration is set out
below:VND
'millions
RM
'millions
Market capitalisation (assumed as the implied 100% equity value of
CW Vietnam based on the Purchase Consideration)
790,993.62
118.65
Add:
Preferred equity as at FYE 30 June 2014
Non-controlling interests as at FYE 30 June 2014
Borrowings as at FYE 30 June 2014
238,576.16
35.78
Less:
Cash and cash equivalent as at FYE 30 June 2014
88,071.92
13.21
941,497.86
141.22
EV (based on the Purchase Consideration)
In addition, the computation for EV for CW Vietnam assuming based on the Total
Consideration is set out below:-
Market capitalisation (assumed as the implied 100% equity value
of CW Vietnam based on the Total Consideration)
Add:
Preferred equity as at FYE 30 June 2014
Non-controlling interests as at FYE 30 June 2014
Borrowings as at FYE 30 June 2014
Less:
Cash and cash equivalent as at FYE 30 June 2014
EV (assuming based on the Total Consideration)
4.
VND
'millions
RM
'millions
1,533,333.33
230.00
238,576.16
35.78
88,071.92
13.21
1,683,837.57
252.57
The rationale for the acquisition of Asia Angel, which require the assumption of liability
of RM44.54 million, instead of directly acquiring the 40% equity interests in CW
Vietnam
The rationale of the Board in undertaking the proposed acquisition of the balance 40%
interest in CW Vietnam through Asia Angel is that the Group intends to undertake any future
opportunities in overseas expansion and/ or investment via Asia Angel as the investment
holding company and vehicle.
In addition to the above, the following paragraph under Section 2.7 of the Previous Announcement in
relation to the ranking of the Consideration Shares has been amended as follows:The Consideration Shares shall, upon issuance and allotment, rank pari passu in all respects with the
existing Chin Well Shares, save and except that the Consideration Shares shall not be entitled to any
dividends, rights, allotment and/ or other forms of distribution ("Distribution") that may be declared,
made or paid for which the entitlement date for the Distribution precedes the date of allotment and
issuance of the Consideration Shares.
This announcement is dated 7 November 2014.
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