Wednesday, December 25, 2013

About Heveaboard Bhd ..

In 2011, Dongwha Malaysia Holdings Sdn Bhd has decided not to pursue its proposed acquisition of Heveaboard Bhd’s particleboard manufacturing assets.

Dongwha had indicated in a letter that it decided not to pursue the proposed acquisition after Heveaboard imposed certain conditions following its request for an extension of time to complete the preliminary due diligence. Following this, the earnest deposit shall be refunded to Dongwha. However, Heveaboard did not state the conditions that were imposed.

Dongwha, a Korean multinational medium density fibreboard manufacturer, then deposited a refundable earnest deposit of RM1 million with the company’s solicitors to hold as stakeholders. The proposed acquisition includes two particle manufacturing plants, industrial land, plants and machinery.

To recap, Heveaboard Bhd had received an offer from Dongwha Malaysia Holdings Sdn Bhd to acquire its assets related to the manufacturing of particleboard. If the deal is approved, it will be transacted at no less than RM245 million, based on the book value of Heaveaboard’s assets as at Dec 31, 2010.

Unlike most other corporate deals that also include liabilities, Dongwha’s offer is only for the assets that have been largely responsible for growing Heveaboard’s business in China.

Heveaboard’s board had received a letter of intent from Dongwha indicating its interest in acquiring Heveaboard’s particleboard manufacturing plant assets comprising, amongst others, two particleboard manufacturing plants, industrial land, plants and machinery.

A refundable earnest deposit from Dongwha amounting to RM1 million has already been paid while Dongwha will conduct a due diligence exercise on the assets which it proposes to acquire. The due diligence exercise will take 75 days from March 28 2011.

If the deal is approved by both its management and shareholders, it could possibly leave Heveaboard a cash rich company, adding RM243 million to its current cash pile of RM22.82 million as at Dec 31, 2010. The cash pile outweighs its market capitalisations that stands at RM92.21 million based on RM1.02 per share.

However, Heveaboard also has outstanding warrants which, if converted, will see an additional 42.6 million shares coming on stream, raising its share capital to 133.6 million shares of RM1 each.

It also has net debts of RM163.16 million based on its unaudited results as of Dec 31, 2010. Assuming all the proceeds from the sale are used to retire the debts in full, the company may end up in a net-cash position of about RM80 million, away from its current net-debt position.

Assuming the warrants are converted, it will add another RM42.6 million to the company’s coffers, making its cash pile rise to about RM122.6 million.

Based on a fully-diluted share capital of 133.6 million shares (assuming the warrants are converted), the company’s net cash per share will amount to 92 sen.

Heveaboard managing director Tenson Yoong had indicated that it intended to continue to pare down the company’s borrowings with the improved cashflow resulting from the growing business of the company.

Heveaboard is a manufacturer of ready-to-assemble furniture and produces particleboard from rubber wood for use in panel furniture, speaker boxes and doors. In 2006, it suffered badly when the company increased capacity along with its competitors causing an industry overcapacity situation, depressing prices of particleboard.

However, Heveaboard recovered over the last two years (2009-2010) by focusing on selling its particle board to China’s domestic market which now accounts for 30% of sales.

But now (May 2011) with the offer for its manufacturing of particle board assets, Heveaboard is uncertain if the board would accept the deal as this would leave the company without its strongest business.

If approved by shareholders, it will leave Heveaboard as a ready to assemble furniture manufacturer and trader of particleboard.

But can RTA manufacturing and trading take the company to greater heights. Is it better than the particleboard business than yielded a margin of 11.73% for FY2010 ended Dec 31? In comparison, the margin from the RTA business is less than 5%.

If the sale goes through, proceeds could be used to expand the operations of its subsidiaries. The proceeds would also enable the company to repay all its bank borrowings.

Also how the company plans to distribute the proceeds to shareholders. The decision can only be made when the sale is completed.

It is uncertain whether Heveaboard will fare better without its particleboard making business. It is worth noting that the RTA making business could continue to face profit margin squeeze from the weakening US dollar, because of the Fed’s QE measures.

Couples with rising oil prices and expectations of further interest rate hikes in most parts of the world, it seems unlikely that the dollar will regain its strength in the near term.

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