High5 - Still No Sign Of Improvement !!!

It has been dogged by financial troubles over the past two years from 2012. Despite the emergence of new stakeholders in 20123, which saw a change in management and a cash injection, the company’s financials have not improved significantly.

It posted net losses of rm11.11 million to rm12.97 million in its three quarters on revenue of rm17.93 million to rm19.24 million. However its net loss of rm12.97 million in its first quarter ended Jan 31 2014 is slightly more than rm10.69 million net loss it reported in 1QFy2013.

The above results prompted investors to question the company’s turnaround plan.

The company’s officials said they are looking to complete the second tranche of interim funding for further expansion and working capital.

The portion of the losses registered in the three quarters will be addressed by a proposed regularization plan which was submitted to Bursa Malaysia in Feb 2014.

To recap, two investors – Covenant Equity Consulting Sdn Bhd and Suncsi Holdings Sdn Bhd – injected rm16 million into High5 in July 2013 to meet its financial needs.

In return, the companies get rm16 million worth of RPS of rm1 each which are convertible into 160 million High5 shares with a par value of 10 sen each plus 320 million free warrants.

A second round of funding, this time amounting to rm22 million is in the pipeline to fund a possible shifting of its factory to new to new premises with cheaper rent and upgrading equipment.

The new management’s team is certainly incentivized to turn the company around. As part of the internal funding arrangement, the team comprising a mix of High5, Covenant and Suncsi representatives was allocated one fifth of the total share option and free warrants entitlement as well as a 10% share of the profits if the company achieves a consolidated audited pre tax profit of at least rm5 million in a financial year.

Nevertheless, legacy issues seem to be impacting the company’s financial well being. High5 is involved in a multitude of civil suits and counter suits between itself and former executives as well as those filed by creditors looking for repayment.

High5’s cash flow position also does not look encouraging. As at the end of 1QFY2014, the company had cash and bank balances of rm4.82 million and bank overdraft of rm90.34 million.

The company has moved to buy new assets worth rm220000 deal will be satisfied in cash via internally generated funds.

The first tranche of rm2 million from the next interim funding may be injected into the company in May 2014.

High5 was hoping its regularization plan would get Bursa’s nod by the fourth quarter of 2014 which would pave the way for the exit of PN17 status.

As part of its revised restructuring plan, the company will undertake a rights issue, which would raise proceeds of up to rm62 million. The two rounds of interim funding, which the officials said should be sufficient for it. It may get a further of rm62 million as part of the regularization plan exercise.