Bursa queries HHRG's RM40mil deal related to land originally owned by Kedah state govt

TheEdge Mon, Apr 22, 2024 10:43pm - 4 weeks View Original

KUALA LUMPUR (April 22): HHRG Bhd's proposed purchase of a 51% stake each in two companies that jointly own a parcel of land in Kuala Muda, Kedah — originally owned by the Kedah state government — has drawn the attention of the stock exchange that queried the company for more details.

Bursa Malaysia on Monday (April 22) demanded an explanation on the amount of earnest deposit paid and its date of payment, the terms of payment arrangement, and the net profits and net asset value of the companies that HHRG intends to buy the stakes in. It also wants HHRG to quantify the audited net assets and net assets per share of the companies that form the basis of the purchase consideration, among others.

HHRG announced its the proposed stake buys in PKB Open Road (SP Circuit) Sdn Bhd (PKBOR) and ORIC Development (SP) Sdn Bhd (ORICD) last week, for RM40 million from Open Road World Sdn Bhd (ORW). They jointly own the 150 acres of land in Kuala Muda. ORW owns 70% of PKBOR, and 100% in ORICD. The remaining shareholdings in PKBOR is 20% held by Permodalan Kedah Bhd and 10% by Jingshi Holdings (M) Sdn Bhd.

HHRG, in its reply on Monday (April 22), said it is required to pay an earnest deposit of RM1 million for the acquisition, while it is still finalising the terms of payment arrangement for the entire RM40 million cash consideration.

The land fetches an indicative market value of RM96.68 million, based on Rahim & Co International Sdn Bhd’s certificate of valuation dated April 17, 2024.

HHRG, formerly known as Heng Huat Resources Group Bhd, also said it has not finalised the development plan for the land involved.

HHRG said the acquisition enables it to increase its land bank, in line with its diversification into property development. The group is mainly involved in manufacturing biomass materials, furniture, mattresses and related products.

According to HHRG, Datin Chok Chew Lan and Charmaine Goh Min Yee own 33.89% each in the seller, ORW, while Julian Goh Sean Loong and Eugene Goh Jet Shen own 11.11% each; Ng Ying Ying owns a 10% stake.

HHRG said the land’s registered owner is Menteri Besar Kedah Incorporated (MBKI), but PKBOR and ORICD are the beneficial owners of the land.

The disclosure revealed that PKBOR had, on Jan 9, 2023, bought the land from MBKI for RM24.3 million. On the same day, it disposed of 80 acres of it to ORICD for RM12.96 million.

In its announcement last week, HHRG told Bursa Malaysia that a definitive agreement to buy the stakes in PKBOR and ORICD is conditional upon satisfactory due diligence. If the conditions are not satisfied, the acquisition may be terminated and the earnest deposit will be refunded.

If the acquisition materialises, HHRG plans to finance it entirely through internally-generated funds.

As of Dec 31, 2023 (3QFY2024), HHRG’s cash and cash equivalents stood at RM65.6 million. It had short-term borrowings of RM11.96 million, comprising RM9.55 million bank overdrafts, RM1.73 million term loans and RM671,000 in hire purchase.

The group’s long-term borrowings stood at RM25.53 million as at 3QFY2024, consisting of RM24.53 million term loans and RM1 million in hire purchase.

For the nine months ended Dec 31, 2023 (9MFY2024), HHRG’s net profit fell 61% to RM6.83 million from RM17.39 million in the previous corresponding period, while revenue declined 22% to RM94.88 million from RM121.04 million.

HHRG said its performance for 9MFY2024 was weighed by higher production costs and moderation of sales. “The decline in revenue was due to the softening demand in biomass, furniture and mattresses, both locally and in the export market, especially from the European market,” it said in its quarterly result announcement.

HHRG’s largest shareholder is GH Consortium Sdn Bhd with a 30.06% stake, followed by CFamillie Holdings Sdn Bhd with17.8%.

The group’s executive chairman Datuk H’ng Choon Seng, who owns a direct 3.8% stake in HHRG, is deemed to have indirect interest in GH Consortium together with Goh Boon Leong, who has a direct 0.2% interest.

Another two shareholders, Ch’ng Chen Mong and Tan Poh Cheng, are deemed to have indirect interests in HHRG via CFamillie.

The share price of HHRG, which has dropped 67% year to date, closed half sen or 2.4% lower at 20 sen, giving it a market capitalization of RM173.57 million.

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