Many wonder why Ninetology made takeover offer to Ingenuity at such high price (0034)

WITH the euphoria surrounding the possible takeover bid on ACE Market-listed Ingenuity Solutions Bhd, we shall have a look at what specifically this company is up to and what has prompted the offerer, Ninetology Marketing Sdn Bhd, to make such a high price for it.

With an offer of 55 sen per share, Ninetology is valuing Ingenuity at an extremely rich 16 times forecast earnings of the company, including forecast earnings from its telecommunications business. There must be some intrinsic value that Ninetology sees in the company but let's just look at the numbers for now.

For its first quarter ended June 30, Ingenuity returned to the black with a net profit of RM3.21mil on the back of a revenue of RM129.84mil. This translates to earnings of just 0.59 sen per share, and its net tangible asset stood at only 9.4 sen per share.

As at end-June, Ingenuity has liabilities totalling RM49.55mil and cash and cash equivalents of RM5.38mil.
Ninetology’s production line at the company’s assembly facility in Shah Alam. Industry sources familiar with takeover offers say the offer by Ninetology to take over ACE Market-listed Ingenuity Solutions is made easy to fail. Ninetology’s production line at the company’s assembly facility in Shah Alam. Industry sources familiar with takeover offers say the offer by Ninetology to take over ACE Market-listed Ingenuity Solutions is made easy to fail.

Checks on the company's numbers showed that its revenue had surged dramatically since the acquisition of a subsidiary, VistaVision Resources Sdn Bhd (VVR), in February.

The first quarter ended June saw revenue actually doubled from what Ingenuity made for the whole of its financial year ended March 31, 2012, during which the company recorded a net loss of RM3.2mil on a revenue of RM63.93mil.

It was even more spectacular if its financial year 2012 numbers were compared to 2011, as revenue shot up by more than nine times from RM6.22mil in 2011, which the company attributed to its new information and communications technology (ICT) distribution business under VVR, while it recorded a net loss of RM1.411mil for 2011.

VVR is involved in the distribution of ICT products and accessories through wholly-owned subsidiaries Ingens Sdn Bhd, Inconnecxion Communication Sdn Bhd, Ingens DSS Sdn Bhd and the newly incorporated 51%-owned NineZTE Sdn Bhd.

In Ingenuity's annual report released on Aug 30, chairman Datuk Feroz A.S. Moidunny said VVR had a ready customer base of about 800 IT resellers and through the acquisition, Ingenuity was able to complement its business such as software solutions expertise, system integration and services business with comprehensive ICT hardware distribution.

The acquisition of VVR is how the company is in its position right now, as via the RM15.45mil VVR acquisition, Ingenuity had satisfied the purchase via the issuance of 154.52 million new Ingenuity shares to the vendors Landasan Simfoni Sdn Bhd and Titanium Hallmark Sdn Bhd.

Of all the new shares issued, both companies had disposed of about 104.52 million of shares via the open market, and still own 4.69% and 4.51% stake respectively in Ingenuity.

Both stakes held currently are the stakes which Ninetology Marketing had offered to buy in its bid to takeover Ingenuity.

The directors of Landasan Simfoni are Low Gah Luen (also executive director of Ingenuity) and Phong Mun Wah, while the owners of Titanium Hallmark are Audrey Yap Yee Siew, Leong Seng Hoong and Yeap Chee Keong. These individuals hold the key to the success of Ninetology Marketing's takeover.

Besides the said individuals, other parties that adds weight are Firstwide Success Sdn Bhd and Chin Boon Long.

Firstwide has a 18.13% stake in Ingenuity while Chin has a direct stake of 12.11% in the company. When combined with his indirect interest in the company, Chin has a 30.24% stake in Ingenuity as the directors of Firstwide are Chin, Feroz and Chan Swee Ying. Chan is the spouse of Chin.

Another executive director, Wong Hun Liang, ceased to be a substantial shareholder of the company after selling his 20% stake in Firstwide to Chin on Aug 17.

It is interesting to note that Chin is the managing director of 1Utopia Bhd (formerly Tejari Technologies Bhd) and although Chin holds such a major stake in Ingenuity, he has not been appointed to the company's board.

Chin first emerged as a substantial shareholder in the company on March 21 with a 8.73% stake he acquired from the open market. He subsequently disposed of 6.8% stake in the company and ceased to be a substantial shareholder.

Following that, he has been building up his stake again since June 28 and his last transaction was a purchase of 11.48 million shares from the open market on Aug 8.

Ingenuity's share price had been traded around six sen in January before climbing to a high of 14 sen in March and hovered around 10 sen before it charged to a high of 46.5 sen recently. It closed at 37 sen on Friday.

Industry sources familiar with takeover offers said the offer by Ninetology Sdn Bhd is made easy to fail.

“Although the company's all-or-nothing approach is unconventional, it is not exactly a bad move by Ninetology as well.

“It actually give them an option to go all in to the company (provided they have the funds) or come out clean if the shareholders reject the offer,” he said.

Recently, Ingenuity had also been granted exclusive marketing and distribution rights for ZTE mobile devices in Malaysia via NineZTE.

Far fetched as it may sound, news reports quoted executive director Low Gah Luen as saying Ingenuity's appointment by ZTE would help the former to meet its targets of RM12.5mil net profit and RM800mil revenue for its current financial year ending March 31, 2013.

NineZTE is also how offeror Ninetology Marketing and target company Ingenuity is linked, as Ninetology Marketing also owns 39% of NineZTE while the remainder is owned by another individual from Brunei named On Chee Seng.

According to filings with Bursa Malaysia on Aug 30, Ninetology Marketing is wholly-owned by Ninetology Holdings Sdn Bhd, of which the shareholders are Marco Beh Heng Thye and Liu Fu, both with a 50% stake respectively.

The unaudited financial results of Ninetology Marketing for the period from March 16 to July 31 stands at a profit of RM952,482 on a revenue of RM14.92mil.

This is the trailblazing tale of Ingenuity that has set the penny stock market on fire with its riveting story. All eyes are now on the decision of the four key parties before the restrictive offer lapses on Sept 11.

ingens n utopia adik beradik?