In RM336m reverse takeover deal, LTKM 7085 LTKM BERHAD proposes to become electronic manufacturing services provider after acquiring new biz, selling existing egg ops

In RM336m reverse takeover deal,  LTKM 7085  LTKM BERHAD proposes to become electronic manufacturing services provider after acquiring new biz, selling existing egg ops

KUALA LUMPUR (April 8): LTKM Bhd has proposed to sell its existing chicken egg production business to become an electronic manufacturing services (EMS) provider in a corporate revamp which will see the emergence of new controlling shareholders in LTKM which plans to change its name to LA Technology Bhd.

LTKM said "the objective of the proposals taken as a whole, is for LTKM to divest its existing non-profitable businesses, acquire a new viable and profitable business while at the same time, rectify its non-compliance with the public spread requirement".

In a bourse filing, LTKM said it has entered into share sale agreements with shareholders of EMS business Local Assembly Sdn Bhd to acquire one million ordinary shares or 100% equity interest in the company for RM336 million, which will be satisfied by a combination of RM100 million in cash and the issuance of 393.33 million new LTKM shares at an issue price of 60 sen each.

Notably, one of Local Assembly's indirect shareholders is Chin Hin Group Bhd chairman Datuk Seri Chiau Beng Teik, who is deemed interested by virtue of Divine Interventions Sdn Bhd's 20% stake in the company. Divine Interventions is a wholly-owned subsidiary of PP CH Realty Bhd, in which Chiau has a 55% stake.

The chicken egg producer said it will also seek an exemption for Local Assembly's shareholders to mandatorily make a takeover offer for its remaining shares that they do not already own after the deal is concluded.

In addition, the company also seeks to undertake a restricted issue of 230 million new LTKM shares, representing 33.1% of the enlarged share capital of LTKM, to investors who will be identified later.

Once the share sale and restricted issue are concluded, Chiau, along the other Local Assembly share vendors, will become major shareholders of LTKM with a combined 56.6% stake, while Local Assembly itself will become a wholly-owned subsidiary of the listed entity.

Under the proposed acquisition, the vendors have also provided a profit guarantee for Local Assembly of a minimum profit after tax (PAT) of RM28 million for the financial year 2022 (FY22) ending Dec 31, 2022 or not less than an aggregate of RM50 million PAT for both FY22 and FY23.

Based on the guaranteed PAT of RM28 million for FY22, the purchase consideration represents a price-to-earnings multiple of 12 times.
Egg production business to be sold for RM159m cash

At the same time, LTKM also announced that it will dispose of its existing business to Ladang Ternakan Kelang Sdn Bhd (LTKSB) for a total cash disposal consideration of RM158.83 million.

LTKSB, which holds 71.6% of the equity interest in LTKM, is also the holding company of LTKM.

Meanwhile, LTKM proposed to undertake a proposed special dividend cum capital repayment of RM1.11 per share on an entitlement date to be determined and announced at a later date, and consolidate two existing LTKM shares into one LTKM share after the proposed special dividend cum capital repayment.

Following the conclusion of the deals, it proposed to change its name from "LTKM Bhd" to "LA Technology Bhd", to reflect its new business.

"At its core, the proposals seek to reward our shareholders from the proceeds of the disposal of the company's existing poultry business while at the same time, allow them to continue participating in the new EMS business following the proposals," LTKM executive chairman Datuk Tan Kok said in a statement.

"The proposed disposal comes amid the challenging operating landscape for the poultry industry brought on by overcapacity, low average selling price of eggs, high raw material prices, difficulty in controlling disease outbreaks in the farms and acute labour shortage. In relation to these challenges, we have also incurred losses in the recent financial years ended March 31, 2020 to 2021 and for the nine-month period ended Dec 31, 2021. This has affected our ability to pay dividends too.

"Concurrent with the proposed disposal, we believe the proposed acquisition of the EMS business is an opportunity to create value for our shareholders through a business that is viable and profitable," he said.

Meanwhile, Local Assembly co-founder and managing director Chai Voon Sun said the listing of Local Assembly via LTKM means a realisation of two decades of hard work for him and his co-founders and a step forward in the company's journey of growth and expansion.

Local Assembly, which started operations in 2000, is a manufacturer of electronic, electrical and plastic injection moulded components, and subcontract assembler of electrical appliances and equipment. Its principal markets are Malaysia and Singapore. For its FY22 ended Dec 31, 2022, Local Assembly achieved PAT of RM20.06 million on the back of a revenue of RM116.35 million.

According to the filing, the application for the proposals is expected to be submitted to the relevant authorities by the second quarter of 2022.

Subject to approvals from relevant parties including Securities Commission Malaysia, Bursa Securities Malaysia Berhad as well as shareholders of LTKM, the proposals are expected to be completed in the first half of 2023.

LTKM shares are suspended from trading for two days from 9am on Thursday until 5pm on Friday. As at the market close on Wednesday, LTKM rose 12 sen to RM1.60, valuing the group at RM228.98 million. Year to date, the counter has risen 17.65%.

http://www.theedgemarkets.com/article/ltkm-proposes-become-electronic-manufacturing-services-provider-after-selling-existing-egg