Singapore Equity: OLS Enterprise
Quick update to the portfolio, no major changes since the last update besides Ho Bee and Overseas Education both going ex-dividend:
A friend highlighted the following penny stock to me and I felt it was sufficiently interesting to add it to the portfolio under the Special Situation category:
Company Name: OLS Enterprise
Share Price: SGD 0.006
Market Capitalisation: SGD 11.8m
A brief history about this company:
OLS Enterprise was formerly known as Transcu, a Japanese biotechnology company listed on SGX via a RTO of the former Eng Wah Global (Eng Wah cinemas).
Transcu was listed with a lot of hype with their transdermal pharmaceutical business undergoing FDA approval (was at Stage II) in the US, a cosmetic business which was enjoying increasing popularity in Japan and their green tech business (nano-fuel emulsion systems) which was meant to help vehicle owners save fuel.
At one point in time, they were even testing a bio-mass system which could help to clean up the radioactive remains from the Fukushima tsunami!
Suffice to say, due to consistent high cash burn for R&D (pharmaceutical segment) and investments to test their green tech projects which led to repeated cash calls and the inability of the company to crystallise their exciting prospective businesses into revenue and profits, Transcu saw its share price decline continuously.
The main funding source for Transcu then came from a certain AMAC Capital Partners whose founder and fund manager was Mr Chew Eng Han (yes, City Harvest Church):
http://news.asiaone.com/print/News/Latest%2BNews/Singapore/Story/A1Story20120628-356034.html
To cut the long story short, Transcu eventually had to dispose of all its businesses for a token sum of JPY 1 or SGD 1 for each segment.
The company name was changed to OLS Enterprise and it acquired a 51% stake in a Malaysian advertising company, Mojo Sdn Bhd which was a barely profitable business but at least, no cash burn unlike the previous businesses.
So what’s so interesting about OLS Enterprise?
Post the restructuring of the company’s debts (Scheme of arrangement where creditors converted 80% of amount owned into equity at SGD 0.008 cents per share), OLS Enterprise looks like a good RTO target for any company looking for backdoor listing into SGX:
http://infopub.sgx.com/FileOpen/OLS-Ann-Scheme%20Submission.Final.ashx?App=Announcement&FileID=337516
Here are the key figures:
Cash: SGD 6.1m
Total other tangible net assets: SGD 1.2m
Total liabilities: SGD 3.0m
Net tangible assets (NTA): SGD 4.3m
Market cap: SGD 11.8m
Implied value of shell company: SGD 7.5m
This looks very cheap compared to historical valuations of SGD 10m to SGD 20m and Jaya’s implied shell value of SGD 12.2m (do note that Jaya is facing possible claims for up to SGD 15.6m from the earlier disposal of its offshore vessel business otherwise the implied shell value might even be higher).
Assuming a shell value worth SGD 15m, then OLS Enterprise should be worth at least SGD 19.3m or SGD 0.01 per share, representing upside of at least 64% from the current share price of SGD 0.006.
Do note that one is buying the shares cheaper than the value of the share agreed with the creditors under the scheme of arrangement.
For example, Stamford Law Corporation was issued 107.8m shares in lieu of services provided in 2012 at an implied value of SGD 0.0159 per share and was issued another 67.1m shares at an implied value of SGD 0.008 per share.
I am betting that major shareholders such as Advance Opportunities Fund which now owns 45.6% of the shares will be able to find a suitable RTO target for OLS Enterprise.
Moreover, OLS Enterprise has been on SGX’s watch list since 04 Dec 2013 and they will need to find a prospective profitable RTO target and enter into a preliminary agreement with them by 04 Dec 2015.
The RTO is the only route to be removed from the SGX watch list before Dec 2015 (see conditions below).
What’s the downside?
In the worst case scenario where OLS Enterprise is not able to find a suitable RTO target and has to make an exit offer before being delisted from the SGX, shareholders can possibly receive the NTA per share of SGD 0.0022 per share.
While the risk reward ratio of 1:1 does not look favourable here (downside of 64% v.s. upside of 64%), it has to be weighted against the probability for each scenario and I think the probability of the worst case scenario is definitely less than 50%.
SGX Watch List
To be removed from the Watch-List of the SGX-ST, the Company would be required to meet the requirements of Listing Rule 1314 of the SGX-ST Listing Manual within twenty-four (24) months from 4 December 2013.
Rule 1314 states, inter alia, that an issuer may apply for its removal from the Watch-List of the SGX-ST if it satisfies any one of the following requirements:-
(a) records consolidated pre-tax profit for the most recently completed financial year (based on the latest full year consolidated audited accounts, excluding exceptional or non-recurrent income and extraordinary items) and has an average daily market capitalisation of S$40 million or more over the last 120 Market Days on which trading was not suspended or halted for a full Market Day;
or
(b) satisfies Listing Rule 210(3) and either one of the following requirements:-
(i) cumulative consolidated pre-tax profit of at least S$7.5 million for the last three (3) years, and a minimum pre-tax profi t of S$1 million for each of those three (3) years;
or
(ii) cumulative consolidated pre-tax profit of at least S$10 million for the last one (1) or two (2) years. Rule 210(3)(a) applies to the last one (1) year or last two (2) years, as the case may be.
Update on Unaudited Financial Position and Outlook
The Group’s cash and bank balances as at 31 March 2015 was S$7.8 million as compared with S$3.1 million as at 31 March 2014.
For the financial year ended 31 March 2015, the Group made a net profit of S$1.0 million.
As at 31 March 2015, the Group had net liabilities of S$2.2 million compared with S$11.2 million as at 31 March 2014.
Having completed the Scheme of Arrangement on 12 May 2015, the Group currently has positive net asset of approximately S$4.6 million.
The Company is now in a better position to identify suitable business(es) to acquire.
Save for the above and as previously announced, there are no other material developments that may have a significant impact on the financial position of the Group or on its future direction.
The Board will update shareholders on any material developments in due course and the Company will make further announcements as and when there are any subsequent developments.
BY ORDER OF THE BOARD
OLS ENTERPRISE LTD.
Koo Ah Seang
Executive Chairman
18 May 2015
Difference between their net asset figure of SGD 4.6m and my figure of SGD 4.3m is goodwill.
I have amended the description in my posting as net tangible asset to avoid any confusion. For liquidation purposes, I have assumed goodwill as 0.
The Proposed Acquisition of the Entire Issued and Paid Up Shares in the Share Capital of Malaysian Phosphate Additives Sdn Bhd.
The aggregate consideration for the Proposed Acquisition is expected to be approximately S$300 million, or such other amount falling within the range of 95% and 105% of S$300 million, to be satisfied in full by way of allotment and issue of new ordinary shares in the share capital of the Company.
http://infopub.sgx.com/FileOpen/OLS_Ann_Proposed%20Acquisition_Final.ashx?App=Announcement&FileID=353458
Hi good morning. May I ask is this latest announcement supposed to be of positive or negative value to its current stock price? Or it may not have any material impact on the price? Thank you. Have a great trading day ahead!
Hi, as you can see from the price action today, the news has been taken very positively as it provides the company with a profitable business backed by Khazanah and Cahya Mata Sarawak (Taib Mahmud).
Cahya Mata Sarawak is very dominant in Sarawak e.g. monopoly for cement business so OLS will benefit from the association.
Thanks for sharing Sir. Will look out for further updates on other counters too. Thanks again.
Hi Sir, thank you so much for sharing all these with everyone . Really appreciated it. Btw may I just ask, Overseas Education price was a bit weak today. I supposed it is just due to the general market sentiment getting quite bad today and not due to any news flow specifically related to Overseas Education? Or there are some negative news flow around? I was checking on the SGX website, didnt really find any annocement today of material importance.
Thank you so much again.
Probably due to higher interest rates then.
Thank you so much for sharing Tradehaven. Thanks again.
Hi Gallen,
Many thanks for producing the article which accurately predicted the RTO. With this announcement, is there any method to predict the NTA of ols share price (on the assumption that the RTO will go through)? Appreciate the guidance.
Hi Nng,
With the current available information, it is not possible to determine what will be the NTA post the RTO but we can do some assumptions from the disclosures:
“The aggregate consideration for the Proposed Acquisition is expected to be approximately S$300 million, ….., to be satisfied in full by way of an allotment and issue of the Consideration Shares….”
“The Consideration Shares shall collectively represent not less than 70% of the enlarged share capital of the Company…..”
Let’s assume new shares issued at SGD 0.01 and consideration shares issued will represent 75% of the enlarged share capital of the Company.
Shares issued to consultant:
“such number of Shares representing 5.00% of the total number of Consideration Shares to be issued by the Company as fees payable to Advance Capital Partners Pte. Ltd. (“ACP”) in its capacity as the consultant appointed by the Company”
95% of the Consideration shares will go towards acquiring the business for SGD 300m because 5% goes to consultant.
Total number of Consideration shares issued = 300,000,000/0.95 = 31,578,947,368
Current number of shares: 1,966,672,989 (post debt to equity conversion)
Conversion of remaining Equity Linked Note: 5,882,352
“Assuming the remaining S$50,000 of ELN are converted into 5,882,352 ordinary shares”
Total number of shares: 33,551,502,709
Consideration shares as % of total shares = 31,578,947,368/33,551,502,709 = 94.1% (too big!)
Need to do a compliance placement to bring this ratio down to the assumed 75%:
Use Excel’s Goal Seek to derive this figure, the placement shares will be 8,542,690,066.
So Enlarged Share Capital = 33,551,502,709 + 8,542,690,066 = 42,094,192,775
Assuming all these shares issued at SGD 0.01, total proceeds will be SGD 420.9m.
Current NTA = SGD 4.3m (in above posting)
So NTA post RTO will be (420.9 + 4.3+0.050)/(42,094,192,775) = SGD 1.01 cents per share.
0.050m is the remaining ELN converted into equity.
It will be very close to the issue price since the existing NTA and current number of shares are very small.
Hope this explains.
Hi Gallen,
Many thanks for the explanation. Is seems that the NTA will depends on the price that the share will be issued.
Since both OLS and Jaya are shell company, would you think that we can use the current Jaya price as reference? Based on the RTO information, it seems that both company is aiming for 300M RTO.
The current number of shares for Jaya is 771M, and OLS is 1900M. The number of share for OLS is around 2.5. Since the value of RTO for both company is 300M, and the cost of doing RTO for Jaya is more expensive compare to OLS, can i use the price of Jaya as reference? Since number of share for Jaya is 2.5x, and if i divide the Jaya’s price by 2.5, OLS could see a possible upside to 0.018. Not sure if i could Jaya to estimate the OLS price if i based on the assumption that the OLS’s price will move similarly to Jaya.
Don’t think you can do that, Jaya has more net assets than OLS although it still faces claims from the vendor over the sale of its offshore assets.
If I were the RTO acquirer, I would want the new shares to be issued at the lowest possible price so I get the maximum number of shares (in absolute terms).