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1. INTRODUCTION
Pursuant to Chapter 10, Paragraph 10.06 of the Main Market Listing requirements of Bursa Malaysia Securities Berhad, the Board of Directors of QL Resources Berhad (“QL” or "Company") wishes to announce that its wholly owned subsidiary namely QL Green Resources Sdn. Bhd. (formerly known as Tong Her Marine Products Sdn. Bhd.)("QLGR") had on 4 October 2010, entered into Share Acquisition Agreement ("SAA") with Leong Yew Cheong, Wong Wee Voo, Foong Peng Foo, Tee Seng Chun and Gan Chih Soon (are collectively referred to as “Vendors”) to acquire an aggregate of 202,559 ordinary shares of Boilermech Sdn. Bhd. ("Boilermech")representing approximately 40.51% of the issued and paid-up share capital of Boilermech for a total cash consideration of RM29,168,496.00 (“Purchase Consideration”).
2. INFORMATION ON QLGR,BOILERMECH AND THE VENDORS
2.1 QLGR
QLGR was incorporated in Malaysia on 11 April 1981 under the Companies Act 1965 (“Act”) as a private limited company under the name of Tong Her Marine Products Sdn Bhd. QLGR assumed its present name on 15 March 2010. QLGR is an investment holding company focusing on agricultural biomass renewable energy-related projects and technologies. As at 30 September 2010, QLGR has an authorised share capital of RM500,000 comprising 500,000 ordinary shares of RM1.00 each of which RM336,522 comprising 336,522 ordinary shares of RM1.00 each have been issued and fully paid-up.
2.2 BOILERMECH
Boilermech was incorporated in Malaysia on 10 May 1980 under the Companies Act 1965 (“Act”) as a private limited company. Boilermech’s is primarily engaged in the business of design, manufacturing, installation and commissioning of biomass boilers, manufacturing and supply of boiler ancillary equipment and major repairs on existing boilers. As at 30 September 2010, Boilermech has an authorised share capital of RM500,000 comprising 500,000 ordinary shares of RM1.00 each, all of which been issued and fully paid-up ("Boilermech Share(s)").
Boilermech recorded an audited revenue and profit after tax of approximately RM98.78 million and RM12.34 million respectively for the financial year ended 30 April 2010, while the audited net assets recorded on even date was approximately RM12.99 million.
The unaudited revenue and profit after tax for the period ending 31 August 2010 were approximately RM36.36 million and RM4.45 million respectively. The unaudited net assets recorded on even date was approximately 22.31 million, which included RM4.86 million of revaluation reserve.
2.3 The Vendors
Mr Leong Yew Cheong holds 115,920 Boilermech Shares representing 23.18% equity interest in Boilermech. He is disposing 11,764 Boilermech Shares (2.35%) to QLGR at a consideration of RM1,694,016.00.
Mr Wong Wee Voo holds 78,660 Boilermech Shares representing 15.73% equity interest in Boilermech. He is disposing 7,983 Boilermech Shares (1.60%) to QLGR at a consideration of RM1,149,552.00.
Mr Foong Peng Foo holds 177,100 Boilermech Shares representing 35.42% equity interest in Boilermech. He is disposing all his Boilermech Shares to QLGR at a consideration of RM25,502,400.00.
Mr Tee Seng Chun holds 28,975 Boilermech Shares representing 5.79% equity interest in Boilermech. He is disposing 2,941 Boilermech Shares (0.59%) to QLGR at a consideration of RM423,504.00.
Mr Gan Chih Soon holds 27,305 Boilermech Shares representing 5.46% equity interest in Boilermech. He is disposing 2,771 Boilermech Shares (0.55%) to QLGR at a consideration of RM399,024.00.
3. DETAILS OF THE ACQUISITION
3.1 Salient Terms of the SAA
QLGR has entered into the SAA to acquire approximately 40.51% of the issued and paid-up share capital of Boilermech comprising an aggregate of 202,559 Boilermech Shares from the Vendors for a total cash consideration of RM29,168,496.00.
The Boilermech Shares acquired by QLGR are free from encumbrances and with all benefits, rights and entitlements accruing or attaching thereto as from the date of the SAA. Completion of the share acquisition shall take place within 10 days from the date of the SAA ("Completion Date"). Upon completion of the share acquisition, Boilermech will become an associates company of QL.
The Purchase Consideration is to be deposited in full to the Vendors' Solicitors as stakeholder on the Completion Date.
3.2 Basis of Arriving at the Purchase Consideration for the acquisition
The Purchase Consideration for the acquisition was arrived at based on a “willing buyer-willing seller” basis, taking into consideration amongst other factors, the valuation of the Company based on the profit after tax as at financial year ended 30 April 2010 of approximately RM12.34 million and a P/E multiple of approximately 5.85 times as well as its prospects disclosed in Section 5 below.
3.3 Source of Funding
The Purchase Consideration for the acquisition was funded by internally generated funds of QL.
3.4 Liabilities to be assumed
Save as stated below, there are no liabilities, including contingent liabilities and/or guarantees, to be assumed by QLGR arising from the acquisition.
QLGR agrees to provide guarantee on a proportionate and several basis in favour of the Company's financiers (if necessary) to replace Mr Foong Peng Foo, the Vendor who shall cease to be shareholder and director of the Company upon completion of the sale and purchase of the Boilermech Shares, within twelve (12) months from the Completion Date, and provided there is no breach of any representations, warranties, undertakings and/or covenants herein on the part of the said Vendor.
4. RATIONALE FOR THE ACQUISITION
QL identifies the biomass renewable energy sector as one of the major growth areas for agriculture and renewable energy in Southeast Asia, where it produces abundant, sustainable agricultural and forestry biomass energy resources. Boilermech is one of the leading biomass boiler manufacturers in Malaysia and has a market presence in Indonesia and other palm producing countries such as Thailand, Myanmar, Ivory Coast and Cambodia. QL’s investment is targeted to capture the growth opportunities in the palm oil industry, the agricultural processing sector and the biomass renewable energy sector in Southeast Asia and other palm producing countries.
Investment in Boilermech also complements QL’s strategy to expand its biomass renewable energy business. Further to the development of its first zero-waste palm oil mill renewable energy project, QL, through its investment in Boilermech, acquires technology and know-how in agricultural biomass power and heat generation. The association and investment enables QL to offer wider range of biomass energy solutions to satisfy different applications needs in different industries and countries. The investment could bring synergy in origination, design and engineering, management and fabrication of biomass energy projects between QL and Boilermech.
5. PROSPECTS
Biomass boilers are general industrial and power generation machineries used to generate steam using biomass fuel. In the palm oil industry, biomass boilers are used exclusively for power generation and sterilization of fresh fruit bunches. Other agricultural processing and basic industries such as latex-based, paper and pulp, wood-based processing, sugar and rice processing industries that requires steam and power generation, are also major users of biomass boilers.
With the high cost and shortage of fossil fuel and the trend of subsidy removal in countries such as Malaysia, there is increasing demand for biomass boilers for other basic industrial uses. Finally, biomass boilers are also important building blocks for independent power plants ("IPPs") generating renewable energy using biomass. In recent years, the trend of climate change increases demand for biomass power and heat generation globally. Renewable energy IPP is also an emerging end-user segment for biomass boilers in Southeast Asia. Overall, the growth of the biomass boiler business depends on the growth of the palm oil industry, Southeast Asia’s agricultural and basic industry as well as the growth in biomass IPP industry.
Palm oil industry
Global palm oil production is expected to grow from 43 million metric tonne ("MT") in 2008 to 94 million MT in 2020. Malaysia's production is expected to grow modestly from 17.3 million MT in 2008 to 27.8 million MT in 2020. Indonesia's production is expected to grow rapidly from 19.2 million MT in 2008 to 55.3 million MT in 2020. The overall industry is expected to grow 8% per annum between 2010 and 2020. The growth in global oil consumption and its supply, especially in Indonesia, is expected to become a significant source of growth for the biomass boiler industry.
Agricultural processing and basic industries
Malaysia’s agricultural processing and basic industries have been benefiting from the country’s fossil fuel resources and subsidies. However, with the increasing shortage of fossil fuel resources and trend to remove fossil fuel subsidies, industrial energy users are increasingly switching their energy fuel from natural gas/petroleum into biomass. This becomes an emerging driver for biomass boiler adoption within Malaysia’s industrial sector. Similarly, in Thailand and Indonesia, who are net importers of petroleum/natural gas and suffering from under-developed energy infrastructure, the use of biomass fuel for industrial power and steam generation is increasingly common. The growth of the agricultural processing and basic industries in Southeast Asia will generate more opportunity for biomass boilers and contribute to its growth.
Renewable energy IPP sector
In the wake of the global challenge in climate change, Southeast Asian countries like Thailand and Philippines have introduced Renewable Energy Act and subsidies to accelerate the adoption of renewable energy. With the tropical climate and rich agricultural production in Southeast Asia, agricultural biomass is targeted to be the largest contributor to the renewable energy generation in the region.
On the local front, the 10th Malaysian Plan issued in June 2010 emphasized on renewable energy development for the country between 2011 to 2015. The plan targets to increase the contribution of renewable energy from the current level of below 1% to 5.5% by 2015.
Overall, the regulations and policies are favourable for the development of renewable energy, especially in biomass IPP and would therefore create additional opportunities for market growth in biomass boilers.
With the growth prospect and profit track record of Boilermech, the company may also be a suitable candidate for listing on the local stock exchange in the near future.
6. RISK FACTORS
The following is a summary of the factors (which may not be exhaustive) which may have a significant impact on QL as a result of the acquisition:
6.1 Political, Economic and Regulatory Risks
The acquisition is subject to the general political, economic and regulatory policies which may change from time to time, and there can be no assurance that any change to such policies will not materially and adversely affect the rights or performance of QL with respect to its investment in Boilermech.
6.2 Investment Risk
There can be no assurance that Boilermech will be able to continue with its growth or profit-making track record, or that the anticipated benefits of the acquisition will be realised.
6.3 Dependence on the palm oil industry
Customers operating in the palm oil industry contributed substantially to Boilermech’s total revenue. Its operations and financial performance will be adversely affected if there is a decline in the palm oil production activities due to factors hindering such activities such as decline in palm oil prices, adverse changes in the regulatory environment governing the industry or natural disasters. While Boilermech can diversify into servicing other end-user industries, there can be no assurance that any change in the palm oil industry will not have a material adverse effect on its operations and financial performance.
6.4 Dependence on Boilermech’s management team or any failure to attract similarly qualified personnel in the future
As QL does not have prior experience in the boiler manufacturing industry, the continued and future success of Boilermech is therefore dependent to a significant extent on the performance and execution of the founding management and technical team.
QL together with the founding team of Boilermech will strive to continue attracting and retaining key management personnel, who are essential to successfully support Boilermech’s operations.
7. EFFECTS OF THE ACQUISITION
The acquisition is not expected to have any material effect on the share capital, substantial shareholders’ shareholdings, net assets per share, gearing and earnings per share of QL for the financial year ending 31 March 2011.
8. APPROVAL REQUIRED AND THE APPLICATION TO THE RELEVANT AUTHORITIES
The acquisition is not subject to the approval of the shareholders or other relevant authorities. As such, no application will be required to be made to the relevant authorities.
9. DIRECTORS’ AND/OR MAJOR SHAREHOLDERS’ INTERESTS AND/OR PERSONS CONNECTED TO SUCH DIRECTORS AND MAJOR SHAREHOLDERS
None of the directors and/or major shareholders of QL and/or persons connected with such directors and/or major shareholders has any interest, direct or indirect, in the acquisition.
10. DIRECTORS' STATEMENT
After taking into consideration all aspects of the acquisition, the Board is of the opinion that the acquisition is in the best interest of the Company.
11. ESTIMATED TIMEFRAME FOR COMPLETION OF THE PROPOSED ACQUISITION
Barring any unforeseen circumstances, the acquisition is expected to be completed by end of October 2010.
12. HIGHEST PERCENTAGE RATIO PERSUANT TO PARAGRAPH 10.02(g) OF THE MAIN MARKET LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD
The highest percentage ratio applicable to the acquisition is 5.80% which is the value of the Purchase Consideration, compared with the net assets of QL Group based on the audited financial statements of QL Group for the financial year ended 31 March 2010.
13. DOCUMENTS AVAILABLE FOR INSPECTION
The SAA is available for inspection at the Registered Office of QL at No.16A, Jalan Astaka U8/83, Bukit Jelutong, 40150 Shah Alam, Selangor Darul Ehsan during normal business hours from Monday to Friday (except public holidays) for a period of 1 month from the date of announcement.
This announcement is dated 4 October 2010. |
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