What’s New

• SCH proposed to acquire the entire equity interest in TK Tent & Air-Conditioning Rental Sdn Bhd (TK Tent) from the vendor, Hextar Holdings Sdn Bhd (Vendor) for RM50m.
• TK Tent is principally involved in the provision of event-related equipment rental for and trading of the following equipment:-

(a) temperature control systems, which includes portable air conditioner, chillers, air handling unit, fabric ducting and ventilation systems;

(b) energy products/equipment, which includes generator sets, cables, switch board, diesel pump and skid tank; and

(c) other event equipment such as tents, furniture, stage, platform, portable toilets and decoration.

TK Tent’s event equipment is mainly used by various trade fairs/shows, exhibitions, office buildings, conventions and national level events held in Malaysia and Asia.

Comment

• Venturing into new business segment. SCH claimed that the new business venture helps to mitigate its dependency on current business which is more cyclical. We are surprised with this new business diversification as we thought that any future asset acquisition could be related or complement to its existing quarry equipment business or mining industry which renders some forms of synergies. We are uncertain how successful of this proposed diversification. Nevertheless, the risk of new business venture will be mitigated by the profit guarantee undertaken by the Vendor for the next 3 years. According to the industry consultant, Protégé Associates Sdn Bhd, the outlook for the event equipment supply market is positive during the forecast period from 2018 to 2021 which is expected to be fuelled by the growth in the business events industry in Malaysia. The forecast compound annual growth rate for the business events industry from 2016 to 2020 is 39.5%.

• Profit guarantee. The Vendor guarantees that TK Tent shall achieve an aggregate PAT of at least RM15.5m for FYE June 2018 to FYE June 2020 (targeted PAT of RM4m for FY18, RM5m for FY19 and RM6.5m for FY20). In return, SCH will offer up to 60m new shares to the Vendor to be issued under the earlier proposed private placement. The Vendor shall be liable to pay any shortfall to the guaranteed sum within 14 days after account closing for FY20. To recap, TK Tent achieved PAT of RM3.9m, RM6.5m and RM1.0m for its FY15, FY16 and FY17 results respectively.

Source: JF Apex Securities Research - 5 Feb 2018