Tuesday, 26 July 2016VS Industry buys stake in NEP for RM60milhttp://www.thestar.com.my/business/business-news/2016/07/26/vs-industry-buys-stake-in-nep-for-rm60mil/
PETALING JAYA: VS Industry Bhd, a maker of electronic products, is buying a 20% stake in the Diamond water filtration system producer NEP Holdings (M) Bhd for RM60mil cash.
The original equipment manufacturer said the major shareholder of NEP has given a minimum profit guarantee of RM40mil for the financial year ending June 30, 2017 (FY17).
According to a statement released by VS Industry, it has to date entered into a conditional subscription agreement with NEP and Lim Chang Huat to subscribe to up to 251,451 shares in NEP, which represents a 20% stake in the company.
Lim is the major shareholder of NEP.
The first tranche will see 111,756 shares being issued to VS Industry upon the payment of RM30mil, while the second tranche of 139,695 shares will be issued within six months upon the completion of the first tranche, subject to the conditions in the deal being fulfilled.
The RM60mil cash will come from VS Industry’s internal funds and bank borrowings.
In the event of any shortfall in the profit guarantee, Lim shall reimburse VS Industry.
It said based on the profit guarantee, the acquisition was pegged at a reasonable price-to-earnings ratio of 7.5 times, which is lower than other listed companies that produce consumer products.
VS Industry’s acquisition price valued the NEP group at RM300mil, versus the fair value range of between RM358mil and RM477mil assigned by FHMH Corporate Advisory Sdn Bhd, an independent market valuer.
“We are pleased to achieve this key milestone. The acquisition of NEP is strategic to VS Industry.
“As a vertically integrated electronics manufacturing services corporation, we have a strong and capable research and development team. We can be an original design manufacturer to NEP, offering designing expertise to help develop new products and expand its offering,” said VS Industry’s managing director Datuk S. Y. Gan.
In the meantime, Gan said NEP can also leverage on VS Industry’s manufacturing facilities in Malaysia, China and Indonesia to increase production efficiency, while it tapped into new markets.
“It’s a win-win situation for both parties, as we focus on our knowhow in designing and manufacturing, while NEP focuses on what it does best – sales, marketing and branding activities,” he added.
Based on VS Industry’s gross cash holdings of RM229.4mil and low net gearing of 0.2 times as at April 30, 2016, Gan said it had no issue funding the acquisition.
From the onset, the NEP buy is expected to be earnings accretive to VS Industry’s FY17, he noted, adding that the exercise is slated for completion by the first quarter of 2017.