Notion VTec (HOLD)

• Notion VTec (NVB) has entered into a Sales and Purchase Agreement forthe purchase of a piece of freehold land in Klang with the size ofapproximately 2.638 hectares along with a 20-year-old industrial factoryerected thereon for a total purchase consideration of RM17.5m.
• NVB will finance 94.3% (RM16.5m) of the purchase consideration with bankborrowing while the remaining with internally generated funds.
• NVB justified the acquisition with expansion purpose hoping to achievebetter cost effectiveness and higher level of economy of scale.
• In its second announcement, NVB also went into an agreement to purchaseof the remaining 20k ordinary shares (10% of the issued and paid-up capital) ofRM1 which it does not already own in Kaiten Precision (M) Sdn Bhd for a totalcash consideration of RM1m.
• With full control of Kaiten Precision, NVB intends to restructure theGroup with plans for further investment and possible injection of businesses.
• Comments: The transaction cost of theplant is fair as independent valuation quoted at a higher price of RM17.7m.
• Using the monthly rental as the denominator, the payback period of theacquisition is rather long, circa 21 years.
• Based on latest audited financial statement (30 Sept 2011), theborrowings for the purchase will elevate NVB's gearing ratio marginally, from0.34x to 0.41x.