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Formis looking to raise stake in Ho Hup

KUALA LUMPUR: Formis Resources Bhd is still looking to acquire more shares in Ho Hup Construction Co Bhd, in which it currently holds 22.66%.

“Based on the prospects of Ho Hup, we would love to increase our stake in the company because we have a lot of confidence in what we can do, and I think Ho Hup’s shareholders and directors will probably feel the same way,” Formis group CEO Datuk Gan Nyap Liou told the media after its AGM yesterday.

A huge catalyst for Ho Hup is the deal it struck with Datuk Desmond Lim’s Malton Bhd to co-develop a 60-acre (24.2ha) tract in Bukit Jalil. The project has been dubbed Pavilion 2 after Lim’s flagship mall in Jalan Bukit Bintang, and will boast 1.32 million sq ft of net lettable area.

Ho Hup’s share price has risen significantly with this catalyst, up 94% this year alone to close at RM1.36 yesterday This gives the company a market capitalisation of RM126.5 million. The stock was up 10 sen or 7.94% alone yesterday.

Formis is considering the merits of making Ho Hup a subsidiary. “We won’t rule it out. But at the moment, we can’t say very much yet,” said Gan when asked if Formis would consider making a general offer for Ho Hup.

“We are now looking at the potential, the shareholder mix, the management team, and where we can help internally. If we can do much more [for Ho Hup] internally and add value, we will increase our stake. If we don’t think we can add value, we will then treat it as an investment asset. As with any investment, we will decide if we want to dispose of it or keep it,” he said.

He compares the scenario at Ho Hup to how the group came to take control of Microlink Solutions Bhd. “As with Microlink Solutions, we began with a 20% stake. Then we got to know the company more and saw the synergies much clearer. We went on to do a general offer and now we control the company.”


Megat Najmuddin holds an 18.56% stake in Formis.

Microlink Solutions, which provides software solutions, is now some 88%-owned by Formis. However, the group intends to keep Microlink’s listing status and has plans to increase the public shareholding spread to the required 25% from the current 11.5% by February next year, noted chief financial officer Richard Voon.

Notably, Formis is in a net cash position, which will make funding acquisitions easier. As at June 30, the group’s balance sheet stood at RM13.9 million in net cash or 3.6 sen per share.

Ho Hup, at RM1.36 per share, has a market capitalisation of about RM130 million. However, Formis will likely have to pay a premium, given the huge development potential of the 60 acres in Bukit Jalil.

“Funding should not be a problem. We have shareholders to go to and we have a line of bankers that are ever willing to listen to what we intend to do and so far, they have been very supportive of what we have done,” said Gan.

Formis’ key shareholders include chairman Tan Sri Megat Najmuddin Megat Khas, who holds an 18.56% stake, and Datuk Mah Siew Kwok, the executive vice-chairman who has 17.64% equity interest. Mah also holds a 4.56% stake in Ho Hup directly.

Meanwhile, Raymond Tan, Monteiro Gerard Clair and Wong Kit-Leong have a combined 22.04% stake in Formis through their vehicle, Red Zone Development Bhd. Both Mah and Wong sit on the board of Ho Hup.

Formis acquired its 20.59% stake in Ho Hup in 2011 from Datuk Vincent Lye at 80 sen apiece, not long after Lye lost in a bitter takeover fight against former managing director Datuk Low Tuck Choy.

According to Bursa Malaysia announcements, Low has about 27% of Ho Hup. Other substantial shareholders of Ho Hup include its non-executive director Datuk Thong Kok Khee, whose listed vehicle Insas Bhd holds a 5.48% stake.


This article first appeared in The Edge Financial Daily, on September 25, 2013.

 

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