Dear all,
My questions send to the Board by email with answers given by the Board in PowerPoint during the AGM (in RED)
Good morning everyone. My name is Lee Soon Sheng and please allow me to express my gratitude to the CEO, BOD and Management team of INSAS for continues making profitable financial year ended June 2018 with quarterly EPS of (5.95, 5.46, 1.20 and 1.04) a total of 13.65 cents as compare to financial year end June 2017 EPS of 27.30 cents and NTA increase from RM 2.34 to RM 2.49. I can understand the poor performance of Q3 and Q4 as investment environment deteriorated due to egotist, dotard and big bully USA President Donald Trump waging trade war with almost every other countries and Malaysia political uncertainty before GE14 follow by policy uncertainty with new PH’s government after GE14 in May 2018.
For today Q&A sessions, I had grouped my questions under 2 subjects.
- Subject A: Review of INSAS 55th AGM minutes.
- Subject B: Financial Year 2018 report and Business outlook
- Review of INSAS 55th AGM official minutes:
I. Items 10 and 11: Dividend
Official minutes clearly implied that INSAS.
1. Business generated enough positive cash flow to pay a better dividend.
2. Has enough cash reserve to pay a better dividend.
3. Do not have cash flow problems if INSAS pay out 25% of 2017 EPS as dividend about 7 cents to the shareholders.
4. The Board has taken note of the shareholders’ comments and will
seriously consider paying additional/special dividend and to formulate a
formal dividend policy in FY 2018.
Q A1. Dato’ Sri Thong can you give factual reasons why INSAS did not carried out what is clearly stated in the 55th
AGM official minutes “seriously consider paying additional/special
dividend and to formulate a formal dividend policy in FY 2018.”Answer A1: The Board has considered the level of dividends to be paid to shareholders for the FY 2018 but in view of the current depressed market conditions due to numerous external and internal events, the board has exercised a conservative and prudent management to retain adequate cash reserves in order to weather any potential unforeseen deterioration in the market conditions, and to position the group for future growth and any good investment opportunities which may arise during this downturn. The Board will evaluate and if appropriate, formulate a dividend policy when the markets recover.
II. Items 14: Share Market Price
Quote “Dato’ Dr Tan Seng Chuan added that the market sees the intrinsic value of the Company at RM3.00 but the market price is trading at +/-RM0.90. He is of the opinion that share prices and the Company’s performance have no direct relationship and the Directors’ primary responsibility is to make sure the Company runs well and not about making share price perform.
DWGK further informed the shareholders that the CEO as a major shareholder of the Company cannot acquire more Insas shares from the market, and the Company cannot continue with its proposed share buyback as such share acquisition and/or buybacks may result in the CEO and persons acting in concert (“PACs”) holding more than 33.0% of Insas shares which will then trigger a mandatory takeover offer (“MGO”) on the remaining Insas shares not owned by the CEO and PACs, unless a waiver of such MGO is granted by the Securities Commission and the shareholders of Insas under the Malaysian Code on Take-overs and Mergers.” Unquote
Note: At 30th June 2018 INSAS NTA RM 2.49 and refer page 107: ASSOCIATE COMPANIES book value RM 357,628,000 and market value of quoted share in Malaysia RM 1,376,569,000. This is about a fair value gain of RM 1,018,941,000 or another RM 1.54 per share. Thus total Intrinsic value of INSAS as on 30th June 2018 is (RM 2.49 + RM 1.54) = RM 4.03 per share.
Q A2. Dato’ Sri Thong has worked very long and hard to accumulate so much wealth into INSAS. With market closing price of RM 0.695 on 9th Nov 2018 versus Value (Mostly liquid assets: Quoted share, bank deposit, money lending &etc) of RM 4+ and growing. A day will come where big shark will tempted to make a hostile take-over the control of INSAS and distribute the wealth to all the shareholders. Dato’ Sri Thong and PACs only hold less than 33% INSAS share, if such hostile take-over do occur does Dato’ Sri Thong and PACs have the resources and supports of friendly minority shareholders to fend off such hostile take-over attempt?
Answer A2: The Board cannot comment on the hypothetical question of potential “hostile take-over” and the resource of Dato’ Sri Thong and PAC, but in the event there is “hostile take-over” in the future, the board of Directors have fiduciary duties to act in the best interest of the Company as a whole, exercise due care, diligence and skill as required by the Companies Act 2016 and Malaysia code on Take-Over and Mergers 2016.
Q A3. When will Dato’ Sri Thong and PACs intends to move over the 33% threshold and make a mandatory takeover offer (“MGO”) or seek a waiver of such MGO from the Securities Commission and the shareholders of INSAS under the Malaysian Code on Take-over and Mergers so that the company cans buyback INSAS share again.
Answer A3: So far the Board has not received any notices of MGO from Dato’ Sri Thong and PAC, and in the event such notice is received, the Board will announce the offer to the Bursa immediately.
The Board will continue to look into the “Whitewash” situation in relation to the application to the SC for an exemption from a mandatory offer obligation arising from the exercise of any conversion rights of options into new voting shares and/or as a result of a share buy-back scheme by the company. Any such application for exemption will require the approval from independent/ non-interest shareholders of the Company at a general meeting to waive their rights to receive mandatory offer.
Q A4. 265,202,536 WARRANTS 2015/2020 and 132,601,268 REDEEMABLE PREFERENCE SHARES expired and due on 25 February 2020. Knowing the intrinsic value of INSAS and if INSAS market share price still remain below RM 1.00 on 25th Feb 2020 will Dato’ Sri Thong and PACs convert the Warrants to INSAS share?
Answers A4: Dato’ Sri Thong and PAC have the similar rights, but not the obligations. Just like any warrant holders to decide whether to convert or not to convert their warrants into new Insas shares at any time before expiry of the warrant exercise period, which is due to expire in February 2010. Accordingly, the Board cannot comment whether Dato’ Sri Thong and PAC will convert their warrants into Insas shares.
Q A5. I intend to mobilize not less than 50 shareholders to send in REQUISITION TO MOVE AND VOTE ON RESOLUTION REQUIRING SPECIAL NOTICE UNDER SECTION 322 OF THE COMPANIES ACT 2016 AT THE 57TH INSAS AGM: To approve share distribution on the basis of ONE (1) INARI BERHAD (Company No. 1000809-U) share for every TWO (2) existing ordinary INSAS share of RM 1.00 held in the Company.
My reasons for doing so are:
- To boost the INSAS share market price above RM 1.00 so that warrant holders have the opportunity to convert their warrant with payment of RM 1.00 into INSAS share and at the same time receive the INARI share distribution rather than total losses if warrant expired on 25/2/2020 out of money. By so doing INSAS will receive RM 265,202,536 and can utilize half of the sum to redeem the RPS.
- Reward the existing shareholders by distributing the INARI share to them and make it less tempting for big shark to make a hostile take-over.
Answer A5: Based on the current depressed market conditions, the Board will not support such resolution as the Board believes that the distribution of Inari shares by way of dividend in specie or otherwise to all Insas shareholders is not in the best interest of the company.
Reasons (amongst others):
- For prudent management, Insas needs to retain reserves to weather any potential unforeseen deterioration in the market conditions, and to position the Group for future growth and any good investment opportunities which may arise during this downturn;
- Pursuant to the company Act 2016, a company may only make a distribution to the shareholders out of profits on the company available. Asof 30 june 2018, the available profit of the company is RM 22.0 million only; and the priority of the Board is to retain sufficient available profit to redeem the RM 132.6 million redeemable Preference Share which are due to mature in February 2020:
- Insas has more than 26,000 registered shareholders and the share distribution will create a large free float of Inari shares in the market, and the increased liquidity will likely depress further the market price of Inari; and
- Inari contributes a significant equity profit and cash dividends to Insas.
Page 9: Technology and IT related services
I. Sengenics is a functional proteomics company: https://www.sengenics.com/
Q B1. What is the Sengenics Company paid up capital, equity structure, revenue and Profit/Loss for the last financial year?
Answer B1: The issued and paid up share capital of Sengenics Corporation Pte Ltd is USD 953,000 and its unaudited shareholders’ funds as at 30 September 2018 is USD 4,498,000.
The gross revenue for the 9 months period ended 30 September 2018 is USD 1,600,000 and it incurred a loss of USD 1,700,000.
Sengenic has a patented proteomics technology and it has signed licensing and collaboration agreements with some of the top pharmaceutical companies in the world.
The equity structure of Sengenics includes:
- Dr Arif, Dr Jonathan Blackburn, Mr Johan Iskandar (Promoters) 60.6%
- Insas 17.4 %
- SBI Islamic Funds (Brunei) 13%
- Hanns Ventures 9%
Q B2. What is Numoni group revenue and Profit/Loss for the last financial year?
Answer B2: The gross revenue of Numoni for the FY 31th December 2017 is S$ 1.3 million and it incurred a loss of S$ 3.3 million
III. INARI outsourced Semiconductor Assembly and Test (“OSAT”) industry for RF products and tailored EMS contract manufacturing to the semiconductor optoelectronic industry.
Page 17: Inari is targeting to grow its light emitting diode (“LED”) and fiber and sensor product portfolio to offset possible lag in radio frequency (RF) demand due to bearish near-term smart-phone outlook. Inari is working with its German customer to develop several new products being fine pitch LED used in billboards and other public display panels and also health sensors as well as vertical cavity surface emitting laser (VCSEL) components for both 2D and 3D sensing applications. This will add new potential customers for the new 600,000 sq ft Inari P34 plant presently under construction in Batu Kawan, Penang. Inari is also in the midst of qualification for a new mini LED line and health sensor for wearable applications, which is expected to spur new revenue growth towards end of FY 2019.
From Inari annual report: The construction of Plant 13 phase 2 was completed in May 2018 and we expect the RF tester capacity to exceed 1,000 units upon full utilisation of the newly added shop floor space.
Q B3 (I). Plant13 RF testers, what is the current capacity? Are over 1,000 units target achievable in view of near term bearish demand for RF?
Answer B3 (I): Currently, Inari has about 1,000 RF testers installed in Plant 13. These RF testers are consigned by one of our major customers. Inari provides outsourced services & our risk on equipment investment is low. RF & other semiconductor business are cyclical in nature, and 5G is just around the corner.
Q B3 (II). Is P34 first building of 240,000 square feet progress on target for qualification by new customers and production of new LED & VCSEL business by mid 2019?
Answers B3 (II): Yes.
Q B3 (III). Any plan to relocate some of the smaller Plants to P13 and P34? Any comment on below posting in i3forum “I just pass by inari p8 at ftz phase4, look like closing down no car, no motorcycle and no security guard seem like already impacted production close down and next quarter would impact minimum salary plus Indon and Bangla high tax.”
Answers B3 (III) Inari is ending the rental of P8 in Nov 2018 and have moved the operations back to its own P13 building. For information, P8 is owned by one of the major customers of Inari and is located in the FTZ Phase 3 in a secured area, and cannot be seen from public roads.
Q B3 (IV). Please provide the top 5 Inari customers in % revenue without naming the customers.
Answer B3 (IV): For FY2018 the top 3 customers accounted for 99% of Inari gross revenue in ratio of 65%, 27% and 7 % respectively.
Q B3 (V). Any BOD or top management in Inari a childhood or personal friend of Penang born Broadcom CEO Mr. Tan Hock Eng?
Answer B3 (V): No.
IV. Page 13: Structured finance:
For FY 2018, ICL reported revenue of RM33.3 million, an increase of 43% as compared to RM23.3 million reported in the preceding financial year. The higher revenue was achieved due to disposal of marketable securities and the granting of RM40 million new loans to several new clients during FY2018. However, the pre-tax profit reduced by 77% from RM12.2 million in FY 2017 to RM2.8 million in FY 2018 mainly due to unrealized loss on fair value changes of financial assets at fair value through profit or loss of RM8.2 million in FY 2018 (2017: RM2.0 million).
Money lending subsidiary company: Insas Credit & Leasing Sdn Bhd
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5850621
Paragraph 8.23(2) (e) Appendix 8D (4) - Top 5 loans (with aggregation of loans given to same person or connected persons) for the Fourth Quarter ended 30 June 2018
| Loan 1 | Loan 2 | Loan 3 | Loan 4 | Loan 5 | ||
| (a) | Facility type | Term loans | Term loans | Term loans | Term loans | Term loans |
| Principal limit | ||||||
| in RM'000 |
90,000
|
52,000
|
40,000
|
25,000
|
10,000
|
|
| (b) | Total amount | |||||
| outstanding | ||||||
| (including interest) | ||||||
| in RM'000 |
78,852
|
56,664
|
34,222
|
16,322
|
9,285
|
|
| (c ) | Security provided |
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
| Value of security | ||||||
| provided in RM'000 |
100,970
|
77,049
|
51,044
|
8,900
|
18,273
|
|
| (d) | Is recipient of loan |
Yes
|
No
|
No
|
No
|
No
|
| a related party | ||||||
| (e) | Terms of repayment in respect of the above loan receivables are as follows : | |||||
| ii) Principal is repayable upon demand; and | ||||||
| ii) Interest is payable on monthly basis. | ||||||
Q C1. What are the interest charge and total interest income from lending activities of Insas Credit & Leasing?
Answer C1: The interest rate charged by Insas credit & Leasing (“ICL”) is in accordance with the Money lending Act, which is not more than 12% p.a for secured loans and not more than 18% p.a for unsecured loans. The total interest income earned by ICL from the money lending business for FY2018 is RM 23.0 million.
Q C2. The unrealized loss on fair value changes of financial assets at fair value through profit or loss of RM8.2 million in FY 2018. Is this unrealized loss related to Loan 4 above and is this loss recoverable?
Answer C2: The RM 8.2 million unrealized loss on fair value change of financial asset at fair value through profit or loss refers to the unrealized mark-to-market losses on the listed securities owned by ICL at 30th June 2018. It is not related to Loan 4.
Q C3. Is Loan 4 new customer or old customer and why Security provided is RM 7.422 million lower than amount outstanding?
Answer C3: Loan 4 is an old customer. The security value of RM 8.9 million does not include the security value of cross-collaterisation against 3rd party assets, and the loan is also guaranteed by the directors of the borrower.
V. Page 13: Investment holding and trading
Page 9: The Group’s investment objectives are to maximise capital growth with recurring income and cash flows above the cost of funds.
As of 30 June 2018, the Group’s investments in listed equities are primarily in the properties, technology, consumer products and financial services sectors in both local and overseas stock exchanges, and the key equity investments include, amongst others, IGB REITS, Ho Hup Construction Company Berhad, Omesti Berhad, SYF Resources Berhad and Oversea-Chinese Banking Corporation Limited.
Q D1. Omesti Berhad and SYF Resources Berhad recently undergone kitchen-sinking and business restructure. What are the business outlooks for this two companies moving forward?
Answer D1: Omesti is in the process of restructuring its business into an information services provider that will provide recurring and sustainable income instead of revenue generated from project to project basis. These projects, which include the SSM and e-Court projects, will form the foundation of Omesti’s future growth.
Based on SYF’s latest quarterly report, SYF is cautious and will streamline its furniture manufacturing facilities to achieve cost saving and improve efficiency. The on-going property development projects are at the final stage of completion and it will hold back the acquisition of further land bank until the property market condition inproves.
Q D2. With Malaysia equity market in severe correction or Bear market opportunity are plentiful for Dato’ Sri Thong to reallocate part of bank deposit for equity investment to maximize capital growth with recurring income. So is Dato’ Sri Thong in the market to pick up these value stocks?
VI. Food and beverages café/restaurant.
- Dome Cafe Sdn. Bhd. Equity 43.4%
- Island Cafe Sdn. Bhd. Equity 30.3%
- Lifestyle Inspirations Sdn. Bhd. Equity 43.4%
- Inshoku Ten Sdn. Bhd. Equity 20%
Q E1. In the crowded field of F&B, many had tried and failed but some are very successful. Does the board has a clear business plan, strategy, unique selling point, menu, marketing, operation efficiency, right (leadership, staffs, pricing and services) to be successful in F&B café/restaurant business?
Answer E1: The retail and F&B business are currently operating in a very difficult and challenging environment, primarily due to the general slowdown in economy. This division is operated fairly independent by our partners, mainly the Melium Group.
To be continued Part (II)
https://klse.i3investor.com/blogs/Sslee_blog/184636.jsp
