EAH (0154) - EAH - Renewed Beast

 Back in November last year, EAH undertook a massive restructuring, clearing out the clutter, and at the same time raised funds via a 4 rights for 3 shares at 2 sen per right. That can be considered a debilitating and taxing rights issue, which wound up being fully subscribed. That is likely to be thanks to major shareholders supporting the rights issue.
Renounceable rights issue of up to 2,524,354,400 new ordinary shares in EAH ("EAH Share(s)") ("Rights Share(s)") at an issue price of RM0.02 per Rights Share on the basis of four (4) Rights Shares for every three (3) existing EAH Shares held, together with up to 1,262,177,200 free detachable warrants in EAH ("Warrant(s) D") on the basis of two (2) free Warrants D for every four (4) Rights Shares subscribed ("Rights Issue with Warrants")

This was followed by a purchase of a credible food distributor Sunland, which was just approved on Friday. People in the food distribution business will know the company well, it is respected and well run. The deal also involved a profit guarantee of RM14m over 2 years.

On 14 December 2017, EAH had entered into a conditional sale and purchase agreement (“SPA”) with the Vendors for the proposed acquisition of 225,000 ordinary shares in Sunland, representing 90.0% equity interest in Sunland for a purchase consideration of RM78,750,000, to be satisfied via Cash Consideration and EAH Consideration Shares.
Subject to the terms and conditions of the SPA, the Sale Shares will be acquired free from any and all encumbrances (includes any interest or equity of any person or any mortgage, charge, lien, pledge, assignment, hypothecation, security interest, encumbrance, title retention or any other security agreement or arrangement or other liabilities) and with all rights, benefits and advantages accruing to those Sale Shares. Upon completion of the Proposed Acquisition, EAH will hold 90.0% equity interest in Sunland and accordingly, Sunland will become a subsidiary of EAH.
Information on Sunland
Sunland was incorporated on 19 August 1985 in Malaysia under the Companies Act, 1965 as a private limited company under the present name.
Sunland commenced its operations on 19 August 1985 and is principally engaged in the selling and distributing of packet drinks, snacks and related products which include, amongst others, fruit juice, premium biscuits, canned fruits, jams and spreads, olive oil and vinegar as well as pasta. At present, Sunland is the agent and distributor in Malaysia to brands such as Basso, Baronia, SICA or SICA Tomatoes, Loreto, Trucillo, Bonomi, Kronos, and D’Amino.
Sunland is currently operating from its premise which is a factory lot, located at No. 4, Jalan Sg. Beting 2, Off Jalan Sg. Putus, 42100 Klang Selangor Darul Ehsan which is owned by Sunland. The current principal market for Sunland's products is in Malaysia and all the revenues generated are derived from the Malaysian market.

Vendors’ guarantee of the PAT of Sunland totalling to RM14.0 million for the following two (2) financial years ending FYE 31 January 2019 and FYE 31 January 2020 (“Cumulative Profit Guarantee”), of which the yearly profit guarantee translates to RM7.0 million for each financial year (“Profit Guarantee”). For the avoidance of doubt, the profit attributable to EAH based on the Profit Guarantee will be approximately RM6.3 million for each financial year, which is 90.0% of the Profit Guarantee (based on 90.0% equity interest of Sunland to be acquired by EAH).

This will be followed by the free warrants E at the ratio of 5 for every 16 shares held. A good reward for those loyal shareholders who went for the rights issue.

The approval for Sunland and free warrants E should propel EAH back on investors' radar. Looking at how the Sunland deal was funded, via issuance of new shares at 4 sen, that is likely to be a new long term bottoming of the shares at 4 sen. I am of the view that Sunland won't be the only business for EAH in the future. If future deals are as sensible as Sunland's valuation metrics, EAH is a renewed beast.