KUALA LUMPUR (June 18): Civil engineering and infrastructure construction group Advancecon Holdings Bhd is diversifying into the quarry business.
In a bourse filing yesterday, the group said it is acquiring 51% of Fook Hua Holdings Sdn Bhd's 100% stake in quarry operator and rock crusher Spring Energy Resources Bhd (SERB) for RM30.4 million.
It said it will pay RM15.22 million in cash and the balance via the issuance of 33 million new shares in Advancecon at 46 sen apiece.
SERB has been loss-making for four financial years since the year ended Dec 31, 2017 (FY17), said Advancecon.
The group said the deal is subject to a total profit guarantee of RM12 million for SERB in FY22 and FY23.
Advancecon said the purchase consideration of RM30.4 million represents a price-to-earnings (PE) ratio of 9.83 times, based on the yearly profit guarantee attributable to Advancecon of RM3.06 million.
Advancecon said the acquisition was aimed at mitigating the reliance on its existing business activities and expanding its earnings base, and allowed it to access SERB’s quarry operation business as well as utilise the quarry products for its earthworks and road-based infrastructure construction activities.
“On top of internal usage, the enlarged Advancecon Group will be able to directly supply SERB Group's quarry products to Advancecon Group's subcontractors who work at the project sites, which is expected to reduce the risk of delay in delivery of materials," the group said.
Advancecon said the cash portion of the purchase consideration will be mainly funded through bank borrowings (RM12.18 million) and internally generated funds (RM3.04 million). The acquisition is expected to be completed by the third quarter of this year.
In a separate statement, Advancecon CEO Datuk Phum And Kia said the SERB stake buy provides the group various synergistic benefits such as ensuring supply of quarry products and machinery to current and future projects in the same vicinity as the quarry sites. Integrating and streamlining the quarry operations reduces overall operational costs.
“This addition also sharpens our competitive edge by expanding our assets and human capital resources, which would position us more favourably when tendering for large-scale projects and increasing our competitiveness.
"Furthermore, Advancecon would be able to leverage on Spring Energy’s distribution network in Negeri Sembilan, Selangor, Pahang and Perak to expand the potential reach of our earthworks and civil engineering services segment,” said Phum.
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