Infortech cashes in on waste

HOMEGROWN software company Infortech Alliance Bhd is finally on its way to entering the recyling business which it sought to penetrate more than two years ago.
The ACE market company recently confirmed that it will be buying local outfit Jaring Metal Industries Sdn Bhd (JMI) for RM64.8mil.
Shareholders gave their nod for this deal at an EGM which was held on Nov 27.
JMI’s principal activities involve the recycling of industrial and electronic wastes (E-waste) to help produce ferrous, non-ferrous and precious metals which are then sold both here and overseas in markets like China and Japan.
Its customers are mainly traders and smelters and include steel mills.
In return for the purchase of JMI, which will be paid for by the issuance of 462.86 million new 10 sen shares in Infortech at 14 sen each, Infortech, which is currently loss-making, will be given an annual profit guarantee of not less than RM9mil, according to a circular send out by the company to its shareholders.
This is expected to kick in immediately.
For the financial year ended Dec 31, 2012 JMI, which is a family-owned concern made a net profit of RM8.5mil.
In its circular, Infortech claims that there is no company listed on Bursa Malaysia which may be considered identical to JMI in terms of scale and business activity, among others.
However, it notes that JMI may face challenges “in the future” with the emergence of new entrants in the market as Malaysia becomes increasingly aware when it comes to the environment.
JMI first penetrated the E-waste business in the late 1990s.
According to its corporate website, the company has been involved in waste reduction and recovery strategies, specialising in scrap removal and recycling for local industrial institutions since 1997.
Infortech had announced the same proposed purchase of JMI as far back as two years ago but according to one source, more time was needed by the authorities to verify certain information on the deal.
“We are quite confident that this new business will be the next phase of growth for the company and offer some value for shareholders,” chairman and director Tan Siew Ching tells StarBizWeek via a short email.
Infortech’s single largest shareholder is Siew Ching who is a family member of the late Tan Sri Tan Yuet Foh, the founder of Tan Chong Motors Holdings Bhd.
She controls some 18% of the company and emerged in the company some two years ago.
Siew Ching was made chairman and director of the company on Nov 29, 2012.
Industry observers say that it is not entirely surprising that Infortech has chosen to go into the E-waste recyling industry by swallowing up JMI.
While it appears completely out of its league given that it is an IT firm, many companies these days are finding ways to diversify their earnings streams by partnering with industry experts, they point out.
Infant stage
It is understood that Infortech will leave the running of the business to JMI as the people there possess the necessary expertise to run the business.
According to Infortech’s circular which quotes industry and Government reports, the recyling industry in Malaysia is still at an infant stage.
The amount of E-waste generated in Malaysia has grown from 40,275.2 tonnes in 2006 to 78,278 tonnes last year, which is a compounded annual growth rate of about 12%.
In 2012, E-waste constituted 4.6% of total wastes generated.
By the year 2020, a total of 21.4 million tonnes of E-waste will be generated in Malaysia, driven mainly by the growth of the electrical and electronics (E&E) industry, according to the reports.
Infortech points out that the E&E industry is one of the National Key Economic Area (NKEA) of the Economic Transformation Programme and receives prioritised Government support including funding and top talent.
The ETP aims to revitalise the E&E industry, it notes by increasing gross national income to RM90.1bil by 2020 and providing an additional 157,000 high and medium-skilled jobs, suggesting the immense potential for the E-waste industry.
While the margins of the E-waste recyling business cannot be immediately verified, observers say that it should be “good”, considering such a business needs a specific level of expertise as well as needs to fulfil licensing requirements by the Government.
Infortech in its circular says JMI had in Dec 2005 obtained its partial discovery waste license and obtained the full license two years later, enabling its to buy waste, recycle ferrous and non-ferrous precious metals as well as trade such metals.
It has also obtained licenses from the Department of Environment to handle other hazardous waste like solder waste, metal hydroxide, spent acid and photographic waste.
Before it obtained the licences, JMI was only involved in activities like the sorting and dismantling process of E-wastes.
It appears that investors have so far given their thumbs up for this deal if the share price performance of Infortech is anything to go by.
The shares in the company have risen more than 70% in the past one week and is currently trading at its highest in more than five years at 52 sen.
Notably, the company which has been in financial doldrums for the longest time has also recently completed a share placement to private investors which raised more than RM20mil.
The money, according to the source will be used for the company’s working capital.
Infortech, like many IT-based companies made a blazing entrance into the Mesdaq market (as it was known then) a decade ago, riding on the immense hype that surrounded the sector then.
Its share price doubled less than a month after its initial public offering.
However, like many IT firms it fell victim to intense competition, competitive pricing of its products and lack of demand.
Consequently, its financial results and share price performance reflected these.
And now, it remains to be seen if this new business of it will allow it to enjoy sustainable investor interest.