Merger for TC Goh’s companies?

KUALA LUMPUR: A merger exercise is on the cards for AIC Corp Bhd, Jotech Holdings Bhd and AutoV Corp Bhd to create a larger group in efforts to gear up for expansion.

Last night, all three companies requested for suspension of trading from today until Monday pending a material announcement expected to be made on Friday.

Sources said the merger exercise will likely be done through a special purpose vehicle (SPV) which will acquire shares in AIC, Jotech and AutoV via share swaps. The SPV will then take over the listing status of one of the three companies.

Notably, all three companies share a common shareholder in Datuk Goh Tian Chuan, and there are cross-shareholding links between the three companies.

Filings show that Goh holds a direct 6.48% stake in Jotech, a 0.49% stake in AutoV and a 20.42% stake in AIC.

Jotech also holds a 16.12% stake in AIC, while AIC holds 19.88% stake in AutoV.

A former senior police officer, Goh started his own business in 1994 and joined a subsidiary of Repco Holdings Bhd in 1995. In September 2000, he was appointed by Danaharta as non-executive and non-independent director of Repco and resigned on Aug 27, 2004.

Observers noted that apart from a common shareholder, the companies had some synergies, particularly in precision manufacturing, which would support the merged entity’s three core businesses namely semiconductor, autoparts manufacturing and resources.

The merger would form a company with a bigger market capitalisation and stronger balance sheet to undertake expansion plans. Its larger size would also enable it to secure more jobs moving forward.

The merged entity would have a combined market capitalisation of RM547 million as at yesterday’s close. Individually, AIC is the largest of the three with a market capitalisation of RM259.1 million at its close of RM1.49 yesterday.

Jotech and AutoV closed at 15.5 sen and RM2 respectively. Their market capitalisation stood at RM171.2 million and RM116.7 million respectively.

On a pro forma consolidated basis, the merged entity would have posted a total net profit of RM36 million for FY10 ended Dec 31 on the back of RM399.6 million in revenue.

Total borrowings for the merged group would stand at RM78.8 million as at end-March 2011, with the bulk of it from Jotech while total cash and cash equivalents would be at RM53.4 million.

AIC, Jotech and AutoV have all shown marked improvements in earnings over the past two years.

Of the three companies, AIC is the most profitable. The semiconductor manufacturer’s net profit almost doubled to RM15.6 million for FY10 ended Dec 31 from RM8.5 million for FY09 as revenue rose 25% to RM167.4 million.

As at end-March 2011, AIC’s net assets per share stood at 80 sen. Its total borrowings were RM25.6 million while cash and cash equivalents stood at RM14.3 million.

Based on its close of RM1.49, AIC is currently trading at price- earnings ratio (PER) of 15.4 times, which is relatively high compared with Malaysian Pacific Industries Bhd (MPI) which is trading at 9.1 times historical PER with a market capitalisation more than three times the size of AIC, according to Bloomberg data.

The merged group would certainly boost AIC closer to larger semiconductor manufacturers like MPI and Unisem Bhd, although it will be more diversified.

Autoparts supplier AutoV made a net profit of RM11.4 million for FY10 ended Dec 31, a 68% increase year-on-year from RM6.8 million previously. Revenue rose 18% to RM102.6 million.

AutoV’s net assets per share stood at 81.8 sen as at 1QFY11 ended March 31. AutoV is in a net cash position with RM17.9 million.

AutoV is the best performing stock of the three companies. The counter has risen some 72% year-to-date. It is the only one among the three companies that paid out dividends last year. It paid out a total of four sen in dividends last year, translating into a yield of 2%.

Observers also noted that the merger would spread its risk profile as 70% of AutoV’s revenue is currently tied to national carmaker Proton Holdings Bhd. AutoV recently made a few acquisitions to cater for Proton’s upcoming models as well as the potential consolidation of the national carmaker’s vendor supplier base.

In March, AutoV completed the acquisition of JP Metal Sdn Bhd, a metal stamping company, from Jotech. The group is now finalising the acquisition of Proreka (M) Sdn Bhd which it is buying for RM27.78 million.

Jotech, meanwhile, has its mainstay in precision stamping, tooling fabrication and sub-assemblies in the automotive and electrical and electronic industries.

However, Jotech diversified into commodities with the acquisition of a 40% stake in British Virgin Islands-based Rockhill Resources Ltd (RHR) for US$2 million (RM7.4 million) in 2009. The deal enabled it to go into coal mining.

In November last year, it acquired two privately held oil palm companies, Malgreen Progress Sdn Bhd and Cergas Fortune Sdn Bhd, for RM28.3 million.

Jotech posted a net profit of RM9 million for FY10 ended Dec 31, a marginal increase from RM8.8 million in the previous year. Revenue rose to RM129.6 million from RM115.3 million. At the end of 1Q, its net assets per share was 12.7 sen with total borrowings and cash and cash equivalents at RM51.9 million and RM19.9 million respectively.

Investors will certainly be watching what Goh’s plans are for the merged company.