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Tuesday, December 22, 2015

Global Oriental sells stake in unit for RM41m

KUALA LUMPUR (Dec 22): Global Oriental Bhd (GOB) ( Valuation: 2.10, Fundamental: 1.70) is disposing of a majority stake in a wholly-owned loss-making subsidiary for RM41 million cash, to redirect its resources to other investments and limit its exposure to future potential losses.

In its filing to Bursa Malaysia, GOB said it had on Dec 22 entered into a share sale agreement with Batu Kawan Development Sdn Bhd to dispose of its 51% equity interest in the unit, Penaga Pesona Sdn Bhd (PPSB).

PPSB is principally engaged in property development. It owns two contiguous parcels of leasehold lands in Batu Kawan, Penang, which spans 103.3 acres and 126 acres, respectively.

Of the total sale proceeds, GOB said RM20.5 million will be used for working capital, RM15.5 million for repayment of bank borrowings, while the remaining RM5 million will be to defray estimated expenses and taxes related to the disposal.

The expected earnings arising from the proposed sale is about RM43.24 million, after taking into account the gain on disposal net of tax, and the reversal of post-acquisition losses of PPSB.

Accordingly, the net assets position of GOB Group would be increased by approximately RM43.24 million post-disposal, and its gearing would be reduced to 0.49 times from 0.58 times as at Mar 31, 2015.

GOB said PPSB has been making losses since its acquisition in 2007, except for financial years 2012 and 2013.

"Given the challenging business condition, the proposed disposal represents an opportunity for GOB group to divest the loss making subsidiary and to redirect its resources to other development projects and investments and at the same time, to eliminate exposure to further potential losses which might be incurred by PPSB," it said.

"The recent entry of major market players into Batu Kawan's property market coupled with current weak market sentiments have created intense competition and significant challenges for marketing our future development projects in mainland Penang," GOB added.

The group said the proposed disposal is expected to be completed within three months by end of first quarter of 2016.

GOB shares closed unchanged at 56 sen today, giving it a market capitalisation of RM254.62 million.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)

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