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Best Share Placement: Overwhelming response to Guan Chong’s fundraising

TheEdge Tue, Jan 07, 2020 03:00pm - 2 months ago


THE RM92.4 million placement of Guan Chong Bhd shares by AmInvestment Bank Bhd has been adjudged the best such deal for 2019.

In September, AmInvestment Bank, the principal adviser and sole placement agent for the deal, successfully placed out 24 million Guan Chong shares, representing 5% of its existing share capital, at RM3.85 apiece to raise RM92.4 million in gross proceeds to fund the company’s investment in a new plant in Ivory Coast and for working capital.

The new shares were placed out to institutional funds at a 4.9% discount to the stock’s five-day volume weighted average price of RM4.0465.

In just two hours during the book-building process, AmInvestment Bank managed to secure a subscription rate of more than 30% for the private placement from both institutional and retail investors.

It also successfully structured the placement to achieve the client’s targeted price-earnings ratio. It subsequently  sweetened the deal with a bonus issue with warrants post-listing of the placement shares.

AmInvestment Bank also overcame persistent investor concerns about Guan Chong’s role as a cocoa bean processor, which is traditionally viewed as a commodity play, by effectively realigning investors’ understanding of the business with managing director and CEO Brandon Tay Hoe Lian’s vision of his company.

AmInvestment Bank also convinced investors that Guan Chong deserved a premium versus pure commodity players due to its strategy of hedging against cocoa bean prices and better pricing power, having successfully decommoditised its products over the past five years.

Between Aug 30 and Dec 2, Guan Chong’s market capitalisation rose more than 47% while its share price gained more than 40% to reach a 52-week high of RM2.98 after adjusting for a bonus issue. Its trailing 12-month PER rose from 8.6 times to 10.7 times in this period while trading liquidity also improved based on its three-month average daily trading volume of 800,718 as at Oct 17, 2019, compared with 618,568 as at Aug 30, 2019.

It is worth noting that the placement was small, representing only half of what was originally planned. Additionally, Guan Chong shares are still in high demand as it is a growth stock with solid fundamentals. So, to begin with, AmInvestment Bank had the advantage of placing a relatively attractive asset.

In fact, Guan Chong had obtained the approval of its shareholders at its last annual general meeting on May 28, 2019, to undertake a placement of up to 10% of the company’s share capital.

Tay told The Edge in a September interview that despite the approval, the company would place out only 5% as “family members were worried about heavy dilution of the stock”. Tay and his family comprise the company’s single largest shareholder with a 2.69% direct stake and 53.1% indirect stake through Guan Chong Resources Sdn Bhd.

Johor-based Guan Chong is the world’s fourth largest cocoa grinder. It posted a 38.4% year-on-year increase in net profit to RM174.65 million for the cumulative nine months ended Sept 30, 2019, while revenue rose 33% to RM2.15 billion.

According to Tay, at the current rate, the company is likely set for a bumper year with a record profit performance in its current financial year ending Dec 31, 2019.

Tay also noted in the interview that size is important to the group. “There are still areas where we don’t have a presence and we need to go [there],” he said, adding that the group does not have a cocoa bean processing plant in the US, Europe and South America.

On Dec 19, Guan Chong announced that it was buying Europe-based chocolate maker Schokinag Holding GMBH (SHG) for €29.93 million (RM137.84 million) as part of its global expansion strategy.

The acquisition of SHG, which is located in the biggest consumer market for chocolate in the world, Europe, is thus seen as a perfect fit for Guan Chong to tap the EU market and to minimise the risk of underutilising the upcoming Ivory Coast cocoa processing plant, which is slated for completion in the first quarter of 2021.

 






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