THE BUZZ  
 Hai-O  announced  to  Bursa  Malaysia  last  Friday  that  it  will  be  signing  a  letter  of  intent (LOI) with Tong Ren Tang Chinese Medicine (Tong Ren Tang CM) on Sept 8 to jointly inject additional investment into Peking Tong Ren Tang (M) SB (PTRT) for the purpose of establishing 'Beijing Tong Ren Tang (M) Chinese Medicine Healthcare and Wellness Centre'.

Investing another RM12.4m. PTRT, incorporated in Malaysia on 19 Jan 2001, provides traditional Chinese physician services and retails traditional Chinese medicines. Its three outlets  are  located  in  Kuala  Lumpur,  Petaling  Jaya  and  Penang.  To  date,  Hai-O  has pumped  in  RM760k  for  its  40%  equity  stake  in  PTRT,  in  which  the  remaining  60%  is being  held  by  Tong  Ren  Tan  CM.  Establishing  the  centre  will  require  USD10m (approximately  RM31m)  in  additional  investment.  Based  on  the  Hai-O's existing  40% equity interest in PTRT, the company's investment portion will be about RM12.4m.

Effective till end-2012. The LOI is effective from the date of its execution up to 31 Dec 2012.  Within  the  execution  period,  parties  to  the  LOI  shall  neither  negotiate  with  any third  party  nor  execute  any  co-operation  project  that  is  similar  with  the  proposed Healthcare and Wellness Centre.

Maintain  NEUTRAL.  According  to  Hai-O's balance  sheet  for  the  year-ended  30  April 2012,  it  has  a  cash  pile  of  RM40.9m.  The  company  will  still  be  in  a  net  cash  position after deducting the extra RM12.4m investment in the proposed project. We think that this investment is necessary in order for the company to expand PTRT's business. Maintain NEUTRAL, with FV unchanged at RM2.16, in view of the limited upside from the current share price. We have not factored in any earnings contribution from the venture in view of the lack of visibility.

Source: OSK