WZ Satu is the next stock to watch

An announcement late Wednesday evening showed major changes were taking place in loss making company WZ Satu Bhd.

In a nutshell, the chairman Tan Sri Norza Zakaria is injecting his private company Citaglobal Engineering Services Sdn Bhd into WZ Satu for RM140mil. He will do this via a combination of shares and RCPS, at a price of 19sen.

This proposed acquisition comes with an aggregrate net profit guarantee of RM60mil for three full financial years ending 2022, 2023 and 2024.

This effectively means WZ Satu, which has been loss making since 2018, will likely turn around next year.

Now, what the market is perhaps ignoring for now, is that Genetec Technology Bhd’s founder and substantial shareholder Aaron Chen Khai Voon is also taking up a substantial stake in WZ Satu.

And what’s interesting is that, local daily StarBiz has quoted sources that Aaron Chen will “play an active role” in WZ Satu.

Considering Aaron Chen’s long-built experience and contacts in construction, facilities management and telecommunications - the same areas Citaglobal Engineering are involved in - one can anticipate WZ Satu to benefit from the synergistic benefits.

Not only that, Aaron Chen’s experience in building Genetec, from a small shop in Negeri Sembilan to automating companies across the world, will also be a major boost.

Added with Norza’s ties with UMNO, considering that he was the former supreme council member, it is not a surprise if WZ Satu benefits from government projects as the 15th General Election nears.

Aaron Chen will enter WZ Satu via a private placement exercise at 17 sen per share.

In an announcement to Bursa, WZ Satu said that Chen will be subscribing 75.2 million shares worth RM12.79mil.

Under the minimum scenario, Chen will own a 8.33% stake, while under the maximum scenario, he will own 5.29% of WZ Satu.

The other subscribers namely Datuk Jeeventhiran Ramanaidu, Francis Sa Chee Peng and Raja Datuk Mufik Affandi Raja Khalid will subscribe about 75.2 million shares collectively, similar to the value injected by Chen.

The cumulative RM25.57mil proceeds to be raised from the private placement will be used for additional investment in existing business and working capital.

So what does Aaron Chen see in WZ Satu?

Firstly, he sees an opportunity in a loss making company that is about to turn around. Back in 2014, WZ Satu was at the RM1.20 level. Today, the stock is at the sub-20 sen level.  

Now, for his stake in WZ Satu, Chen is wearing the hat of his private company, KVC Industrial Supplies Sdn Bhd.

KVC Industrial Supplies is a leading Industrial supplier in Malaysia, founded in 1989 with more than 20 sales offices all over Malaysia.

Presently it has approximately 600 associates serving over 6,000 active customers.

Chen could perhaps view WZ Satu as a platform for KVC to garner more substantial jobs in the future.

Afterall, Norza’s Citaglobal already comes with an orderbook of RM500mil. These are in the areas of construction, facilities management and telecommunications  - all under the sectors which KVC is already in.

Furthermore, there is a high likelihood that WZ Satu will not be satisfied just with RM500mil worth of contracts.

Who knows what else is in the pipeline over the next few months.

Should WZ Satu be successful in steadily bagging jobs under the new leadership of Norza, this would also mean KVC gets a steady stream of income moving forward.

Let's also not ignore the elephant in the room, where a substantial shareholder of WZ Satu is the current Yang di-Pertuan Agong, Al-Sultan Abdullah Ri'ayatuddin Al-Mustafa Billah Shah.

Based on the latest annual report, His Majesty has a 9.07% stake in WZ Satu.

Now, having KVC in the picture, is also a huge value addition to WZ Satu.

Investors may recall that KVC was listed in 2002 on the Main Market of Bursa Malaysia under ATIS Corp Bhd where Chen was group managing director.

In 2012, ATIS was privatised and delisted.

Many may not realise, but KVC officially became a Sonepar company that same year. This happened following the formation of a strategic alliance between the two companies.

Sonepar is a Paris based family-owned company with global market leadership in B-toB distribution of electrical products, solutions and related services. It generated sales of 23 bil euros in 2020.

Sonepar’s expertise and reputation will strengthen the technical expertise of WZ Satu, and bode well, when the latter looks to bid for larger and more complicated jobs in the future.

Having said all that, at the end of the day, earnings and profitability speaks the loudest – no matter the amount of connections and ability to secure contracts.

It could be early days, but WZ Satu certainly looks like a stock to watch.