CHINA-based frozen food maker HB Global Ltd saw the emergence of a new substantial shareholder, Malaysian businessman Keh Chuan Seng, recently.

On July 13, Keh acquired 150 million shares, or a 32.1% stake, from the company’s co-founder and CEO Shen Hengbao via an off-market transaction. The shares were transacted at two sen per share, a discount of 84% to the company’s closing price of 13 sen that day, valuing the transaction at RM3 million.

The purchase made Keh the single largest shareholder in HB Global.

Shen’s indirect stake in HB Global, held via Hengbao Foodstuffs Holding Ltd, was reduced further to merely 7.6%, after he disposed of 81.67 million shares or 17.4% equity interest at between 0.5 sen and 4 sen per share on July 14 and 15.

Keh’s acquisition did not trigger the 33% mandatory general offer threshold, but investors are wondering about his next move and his plans for HB Global.

When contacted by The Edge, Shen says the company’s business direction remains unchanged and it is looking for more business opportunities in Malaysia. This is to expand its existing business and bring about synergistic effects.

Shen believes that Keh will be able to add value to the group, including identifying similar businesses in Malaysia under its expansion plan.

Last October, state-owned investment fund Khazanah Nasional Bhd’s Agro Treasures Sdn Bhd ceased to be a substantial shareholder in HB Global after disposing of 2.54 million shares, or a 0.5% stake, in the company. This brought its shareholding down to 4.9%.

Specialising in ready-to-eat duck meat products, HB Global’s production facilities are based in China’s Shandong province. It produces more than 1,000 types of products, which are exported to over 20 countries, including Japan, the US, Singapore, Australia and South Korea.

A check on Chinese corporate database qcc.com shows that its major subsidiary Shandong Hengbao Foodstuffs Co Ltd (SHF) is privately owned by Shen (49%), Meng Xiangzhen (30%), Wang Junling (19%) and two others. Meng is HB Global’s co-founder and executive director.

When asked, Shen says there has been no change in the ownership of SHF and that it is still under the company’s control.

He adds that the information was audited in accordance with procedure and is reflected in the auditors’ report.

At press time, HB Global’s external auditors Messrs UHY Lee Seng Chan & Co had not replied to requests for comment.

SHF is principally involved in the design, research and development of ready-to-serve products and marketing activities.

HB Global was lifted from Practice Note 17 status last October by Bursa Malaysia after taking into consideration the company’s financial position as at June 30, 2019. It recorded net assets of RM201.3 million as well as two consecutive quarters of net profit.

It is worth noting that HB Global was the first red chip stock on Bursa Malaysia to trigger the PN17 criteria in May 2013, due to a disclaimer opinion on its 2012 accounts by its auditors.

Before its PN17 status was lifted, HB Global had been publicly reprimanded by Bursa Malaysia in September 2018 for breaching listing rules, as it failed to ensure that its financial report for the fourth quarter ended Dec 31, 2016 (FY2016), took into account adjustments announced on April 28, 2017.

HB Global returned to the black in FY2017, after being in the red since FY2013. However, the Covid-19 pandemic took a toll on its

financial performance, resulting in it slipping into the red again with a net loss of RM6.52 million for the first quarter ended March 31, 2020, against a net profit of RM5.49 million in the same quarter a year ago.

Quarterly revenue fell 60.9% to RM8.8 million from RM22.51 million, partly due to the holiday break during Chinese New Year.

Last year, HB Global’s net profit fell 10.5% year on year to RM9.9 million while revenue declined 6.4% y-o-y to RM92.57 million as a result of a drop in sales of ready-to-serve and frozen vegetable products.

Its cash and cash equivalent only stood at RM91,000 as at end-March 2020, compared with RM926,000 as at end-December 2019.

HB Global, formerly known as Sozo Global Bhd, was the sixth red chip stock to be listed on the local bourse.

Year to date, its share price has more than doubled. It closed at 15 sen last Wednesday, giving the company a market capitalisation of RM70.2 million.