KUALA LUMPUR (Feb 5): Chin Hin Group Bhd has entered into a deal to raise its stake in Signature International Bhd to above 33%, which will require the group to launch a mandatory general offer (MGO) for the remaining shares in the kitchen cabinet manufacturer.

Chin Hin, which owned a 28.72% stake in Signature as at Jan 16, is proposing to buy another 4.77% stake from Teoh Hai Hin and Por Tong Eng for RM25.45 million cash or 84 sen per share.

With the total stake rising to 33.49% upon completion of the acquisition, Chin Hin will be obliged to extend a conditional MGO for the remaining shares in Signature at 84 sen a share.

The construction group said the acquisition price tag implied a price-to-earnings ratio of 13.12 times based on Signature’s trailing 12-month consolidated profit after tax and minority interest up to Sept 30, 2023.

The price tag represents a 0.16% premium to Signature’s five-day volume-weighted average price (VWAP) but a 35.3% discount to the one-year VWAP, according to Chin Hin’s stock exchange filing on Monday.

Chin Hin first bought into Signature in March 2021 at RM1.17 per share, when the group paid RM93.6 million to buy 80 million Signature shares.

In its filing on Monday, the group said it intends to maintain Signature’s listing status after the MGO, which requires shareholders’ approval via an extraordinary general meeting.  The group has secured agreement from eight shareholders, who collectively own a 17.7% stake in Signature, to reject the MGO.

These shareholders are JPND Singapore Pte Ltd (7.35%), Teo Lay Ban (2.76%), Lee Kean Leng (1.56%), Chow Kian Hung (1.07%), Koey Ching Hock (0.72%), Ong Hang Ping (1.32%), Ng Beng Hoo (1.72%) and Wong Hoong Wai (1.22%).

Assuming full acceptance of the MGO, Chin Hin said it will be required to fork out a total of RM262.55 million to buy 312.56 million shares.

Chin Hin said it will pay for the acquisition of shares from Teoh and Por with internally generated funds, while purchases under the MGO will be funded via bank borrowings.

Chin Hin disclosed that its gearing ratio has reached 1.72 times as at Jan 16 and the additional borrowings would raise its leverage to as high as 2.56 times.

The group estimated that total borrowings would increase to RM1.64 billion from RM1.03 billion after full issuance of Chin Hin’s RM470 million perpetual medium-term notes, and the required consolidation of Signature’s financial results upon full MGO acceptance, as ownership in Signature would cross the 50% threshold to be a subsidiary of Chin Hin instead of an associate.

Chin Hin is 58.8%-controlled by Datuk Seri Chiau Beng Teik, of which 21.16% are direct ownership while 37.68% are indirect interest via his private vehicle and family members.

Even with potentially higher debt, Chin Hin said it is an "opportune time" to increase its stake in Signature given the latter’s positive earnings prospects and synergy between the duo going forward.

“Chin Hin takes cognisance that in order to better complement its strategy and achieve its growth objectives in Signature, it will require a higher controlling stake in Signature,” it said.

Chin Hin said the potential consolidation of Signature's financial results is expected to improve the former’s overall financial performance as well.

“The Signature proposals will also provide Chin Hin Group with the opportunity to enlarge its asset base and hence have better access to both the debt and equity capital markets to fund current and future business undertakings and expansion plans,” it said.

After the MGO, Chin Hin proposes to undertake a bonus issue on the basis of one bonus share for every existing share. It aims to issue 1.77 billion new shares in the group, to reward shareholders and to improve trading liquidity of the stock.

Chin Hin’s last bonus issue was in August 2022, on a one-for-one basis, issued 885.08 million new shares.

“Notwithstanding the above, since the completion of the previous bonus issue in August 2022, the share price of Chin Hin had trended upwards to a high of RM4.80 in March 2023 and is currently trading within the range of approximately RM3.37 to RM3.77 in the past one-month period up to [Jan 16],” the group said.

AmInvestment Bank has been appointed as principal adviser to these three proposals, which are expected to be completed by the first half of this year.

Shares of Chin Hin closed 13 sen or 3.7% higher at RM3.67 on Monday, giving the group a market capitalisation of RM6.5 billion.

Signature settled two sen or 2.4% higher at 86 sen, valuing the company at RM555.13 million.

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