THE Minority Shareholders Watch Group (MSWG) is querying RGT Bhd (previously Asia Knight Bhd) at its forthcoming AGM as to why the company based its valuation of a business it wishes to acquire on a forward-looking price-to-earnings ratio (PE) of a one-year profit guarantee instead of on past financial performance.
On Sept 18, RGT announced that it planned to acquire the remaining 40% stake in Rapid Growth Technology Sdn Bhd (RGTSB) for RM124.8 million – an increase of RM76.8 mil from RM48 mil announced on Aug 21 last year.
The one-stop solution provider for air care and hygiene-related products has rationalised that the revision of purchase consideration was due to anticipated growth potential in RGTSB’s earnings prospect which is driven by its hygiene care segment.
Additionally, the monitoring body also wished to know how is RGTSB able to assure RGT’s shareholders that its strong financial performance (after FY2021) is sustainable, thus justifying the acquisition price in the long run.
This is because the medical and healthcare-related businesses have achieved exceptional financial performance in 2020 mainly due to a surge in demand for their products stemming from the COVID-19 pandemic.
However, risks abound that a similar robust financial performance may not be replicated in post the COVID-19 period.
Elsewhere, MSWG also enquired from Multi-Usage Holdings Bhd the issue of its shrinking bank and cash balances to RM783,000 in FY2020 from RM5.29 mil in FY2019 which the company attributed to lower revenue and losses incurred in FY 2020.
In this regard, MSWG posed three questions, namely:
- Will the group’s operation be affected by the low bank and cash balances moving forward?
- What are the measures taken by the group to address the low bank and cash balances available?
- Does the group have any banking facilities that it can drawdown if it needs cash? If yes, what is the amount available and the interest cost?
In a related development, the monitoring body also queried Latitude Tree Holdings Bhd pertaining to the significant increase in its allowances for expected credit losses for trade receivables increased to RM4 mil in FYE2020 compared to RM1.2 mil in FYE2019.
The answers sought by MSWG are (i) why is there a sharp spike in the allowances; and (ii) how much of the allowance has been collected after the financial year end. – Dec 11, 2020
