AT Systematization Bhd (ATS) believes its foray into the glove-making business comes at an opportune time as the world tackles the Covid-19 crisis.
The rationale to diversify, as ATS is an industrial automation systems provider, was because the gloves sector offered high growth potential, said ATS managing director L A Choong.
In a Bursa filing yesterday, ATS announced that it had signed a letter of intent (LOI) to acquire Kedah-based industrial glove company Pearl Glove Sdn Bhd.
“The Covid-19 pandemic has upped the demand for gloves and we thought it was an opportune time to enter into the industry,” he said.
While Choong was not at liberty to discuss the details as the company had signed a non- disclosure agreement with Pearl Glove, he believes the company offers potential.
According to Choong, Pearl Glove could easily alter its production lines to produce medical gloves. The next phase of the proposed acquisition is a due diligence exercise of Pearl Glove, he added.
As ATS is currently involved in precision tooling, sheet metal and system assembly, Choong said that its current expertise would assist in the automation of the gloves outfit.
But analysts tell FocusM that the proposed acquisition of Pearl Glove by ATS was in its nascent stages and that makes the deal difficult to assess.
Chief investment officer at Leinves PLT William Ng told FocusM that the deal was only at the LOI stage and nothing had been firmed up yet.
“As the deal was only at the LOI stage, it would be difficult to gauge its impact,” said Ng.
He said the matter would be different if ATS had entered into a share sale agreement where details of the acquisition would be disclosed. This would be the basis of a valuation of the company to ascertain if the company would benefit from the deal.
Ng also said that it remains to be seen if ATS will enter the medical gloves market which enjoyed higher margins.
Glove makers have been enjoying a solid run in Bursa Malaysia due to the overwhelming demand for their products as a result of the Covid-19 pandemic.
Meanwhile, Rakuten Trade vice-president Vincent Lau told FocusM that, at the outset, the deal was positive but the valuation of the deal which was unknown at this juncture remains a stumbling block in arriving at a conclusion about the proposed transaction.
“We have to run through the numbers to ascertain the attractiveness of the deal but this is not possible now as the deal is only at the LOI stage,” said Lau.
At the market close today, ATS shares settled at 16 sen, up 3.5 sen or 28%, with 745 million shares traded. – June 11, 2020
