10.01.2020
Virtues of transparent investing
While it is sensible for listed entities to invest outside its core businesses – or in an unfamiliar industry – the venture must make valid investment sense. Preferably, the business must be profitable – if not, have every potential to generate healthy returns – and most of all, it must be transparent to all shareholders.
Thus, 7-Eleven Malaysia Holdings Bhd (7-Eleven) recent subscription of a 46.45% stake for RM7.51 million in Myinteractivelab Sdn Bhd (MSB) – the company operating the motorbike e-hailing service provider Dego Ride, raised eye-brows, not only because the transportation industry is an alien business for the convenient store operator, but more so considering MSB is both loss-making and has no proven track record in the e-hailing industry, unlike Go-Jek or Grab Car.
MSB’s meagre net loss was RM41,939 on the back of RM36,440 revenue in the financial year ended 31 December 2018. This fact was not disclosed in the announcement and shareholders had to learn of it from the press (Focus Malaysia, 3 January 2020) and this may not go down well with shareholders. Surely shareholders expect large-cap PLCs like 7-Eleven to be more transparent and shed more light on the transaction.
Moreover, the long-term viability of the motorbike e-hailing business concept is in doubt. On 1 November 2019, the Government announced that it would allow bike-hailing services to improve on the last mile connectivity for the public transportation system. In this regard, companies will be allowed to offer rides under a six-month Proof of Concept (POC) pilot project, starting from January 2020, to assess the system while awaiting laws to be passed to regulate bike-hailing.
What will happen to the investment in MSB should the government decide on a ‘no-go’ on motorbike e-hailing after the six-month POC period? Besides, what is Dego Ride’s comparative advantage in the segment compared to the industry giants like Grab and Go-Jek which have also expressed their keen interest in the segment?
These unanswered questions have left the public wondering if 7-Eleven has conducted a sufficient due diligence study on the risk and reward of such an investment. It will be interesting to watch how ‘the new kid on the block’ is able to fence-off competition from seasoned players like Grab and Go-Jek.
Above all else, the rationale for its share subscription in MSB as per its announcement dated 27 December 2019 to Bursa Malaysia sounded vague with 7-Eleven only expecting its acquisition of a substantial stake in MSB as a means “to provide convenience delivery services for its 7-11 outlets” without deliberating how this can materialise. The transaction was not subject to the approval of the shareholders of 7-Eleven or any relevant authority.
Nevertheless, the announcement also shed meaningful light into the existing shareholders of MSB – namely its founder Nabil Fiesal Bamadhaj (95.23%) and Qinetics Solutions Sdn Bhd (4.77%) – alongside the company’s business profile.
Incorporated on 26 May 2009, MSB has an issued share capital of 565,000 ordinary shares of RM1 each. Its principal activities are the provision of delivery services, web development, design and consultation services and being the operator of three mobile applications, namely “Dego App”, “Dego Partners” and “Dego Orders”.
While MSB cannot be faulted for its ability to court a household name to fund its operations, the presence of Qinetics Solutions as MSB’s minor shareholder may be a reason why 7-Eleven is taking up a stake in MSB.
Further check reveals that Qinetics is 84% (Focus Malaysia, 3 January 2020) owned by Mol.com Bhd which was later renamed as Mol.com Sdn Bhd. Mol.com is 81.17% owned by Tan Sri Vincent Tan, who is also the founder of Berjaya Corporation Berhad and a substantial shareholder of 7-Eleven with direct and indirect interest of 25.15% and 20.17% respectively.
It appears that Tan already has a prior indirect stake in MSB. Is he strengthening his grip in the company via 7-Eleven?
While it is not wrong for 7-Eleven to invest in MSB, the question is whether a listed company should subscribe a substantial stake in an unproven business venture.
The share subscription exercise could have been conducted on a private investment basis considering the RM7.51 million price tag is a small sum to pay for the Berjaya Corp’s Tan Sri founder.
At the end of the day, it is a business decision that the Board of 7-Eleven has made. Only time will tell how this investment shapes out.
By Devanesan Evanson
Chief Executive Officer
MSWG AGM/EGM Weekly Watch 13 January 2020 – 17 January 2020
For this week, the following are the AGMs/EGMs of companies which are in the Minority Shareholders Watch Group’s (MSWG) watch list.
The summary of points of interest is highlighted here, while the details of the questions to the companies can be obtained via MSWG’s website at www.mswg.org.my.
|
Company |
Company |
Quick-take |
|
Trive Property Group Berhad (AGM) |
13.01.2020 (Mon) 11.00 am |
As at FYE 2019, cash and cash equivalents of the Group decreased significantly to RM3.4 million (2018: RM15.5 million). Besides, the Group’s investments in quoted shares are acquired under the name of a director (Note 14, page 103 of the Annual Report 2019). |
|
Concrete Engineering Products Bhd (AGM) |
15.01.2020 (Wed) 10.00 am |
FY2019 was another poor year for CEPCO. It registered a 37.1% year-on-year decline in revenue to RM101.9 million (FY2018: RM162.0 million) due to the cancellation of local infrastructure projects and the very subdued construction market. CEPCO’s losses widened to RM11.6 million in FY2019 (FYE2018: RM5.6 million). |
|
Astino Bhd (AGM) |
17.01.2020 (Fri) 10.30 am |
Despite the higher revenue achieved, the Group recorded a lower PBT of RM33 million for FY2019, an 8.3% decline compared to RM36 million recorded in the previous financial year. Against the backdrop of moderate growth in the construction sector and weak market sentiment in the first half of FY2019, the Group focused on driving volume sales with cost control measures to achieve its target. |
Some of the questions raised to PLCs prior to the AGM/EGM are as followed: -
|
One of the points of interest to be raised: |
|
|
Company |
Points/Issues to Be Raised |
|
Trive Property Group Berhad |
1. Other Investment – Impairment losses on investment in quoted shares in Malaysia has increase to RM2.4 million (2018: RM1.4 million). Investments in quoted shares are acquired under the name of a director (Note 14, page 103 of AR2019). (a) To which quoted shares in Malaysia do the impairment losses relate to? (b) What is the Board’s decision making/approval process in relation to the purchase of quoted investments? (c) The Company’s investments in quoted shares are placed under which director? Why is it placed under the name of a director and not the Company? (d) How does the Audit Committee and Risk Committee manage the risk associated with investment in quoted shares in Malaysia and placing investments in quoted shares under the name of director? 2. Revenue from one major customer represented approximately RM4.2 million (2018: RM4.1 million) which is 100% of the Group’s total revenue (Note 29, page 116 of AR2019). How does the Board/Audit Committee manage the risk of dependency on one major customer? |
|
Concrete Engineering Products Bhd (AGM) |
Financial performance (Page 16 of the Annual Report 2019)
CEPCO’s top-line and bottom-line figures have been on a declining trend since FY2017. How will the Board strategise to address the declining trend and turn-around the financial performance of the Group, moving forward?
|
|
Astino Bhd |
The Group’s business is in a competitive environment and the Group faces stiff competition from other local manufacturers and cheap imports from low-cost producing countries (Page 6 of Annual Report 2019). How will the Group address the competitive environment and stiff competition as well as the cheap imports, going forward? |
Details of the other questions to the companies can be obtained via MSWG’s website at www.mswg.org.my.
MSWG TEAM
Devanesan Evanson, Chief Executive Officer, ([email protected])
Linnert Hoo, Head, Research & Development, ([email protected])
Norhisam Sidek, Manager, Corporate Monitoring, ([email protected])
Lee Chee Meng, Manager, Corporate Monitoring, ([email protected])
Elaine Choo Yi Ling, Manager, Corporate Monitoring, ([email protected])
Lim Cian Yai, Manager, Corporate Monitoring, ([email protected])
Nor Khalidah Mohd Khalil, Executive, Corporate Monitoring, ([email protected])
DISCLOSURE OF INTERESTS
•With regard to the companies mentioned, MSWG holds a minimum number of shares in all these companies covered in this newsletter.
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ENDS. /
