Bursa queries HHRG's RM40mil deal related to land originally owned by Kedah state govt

KUALA LUMPUR (April 22): HHRG Bhd’s proposed purchase of 51% stakes in two companies that jointly own a parcel of land in Kuala Muda, Kedah that was originally owned by the Kedah state government has drawn the attention of the stock exchange that queried the company for more details.

Bursa Malaysia on Monday (April 22) demanded an explanation of the amount of the earnest deposit and date of payment by HHRG, the terms of arrangement for payment, and the net profits and net asset value of the companies that HHRG intends to buy 51% stakes in, and to quantify the audited net assets and net assets per share of the companies they intend to invest in, which forms the basis of the purchase consideration, among others.

To recap, HHRG last week announced its proposal to buy 51% stakes in PKB Open Road (SP Circuit) Sdn Bhd (PKBOR) and ORIC Development (SP) Sdn Bhd (ORICD), which jointly own the 150 acres of land in Kuala Muda, for RM40 million cash, from Open Road World Sdn Bhd (ORW). ORW owns 70% of PKBOR, and 100% in ORICD.

HHRG, in its reply on Monday (April 22), said it is required to pay an earnest deposit of RM1 million for the acquisition, while still in the midst of finalising the terms of arrangement for payment of the entire RM40 million cash consideration.

It must be noted that the land fetches an indicative market value of RM96.68 million, based on Rahim & Co International Sdn Bhd’s certificate of valuation dated April 17, 2024.

The group, formerly known as Heng Huat Resources Group Bhd, also said it has not finalised the development details for the land involved.

HHRG said the acquisition enables it to increase its land bank, in line with its diversification into property development. The group is mainly involved in manufacturing biomass materials, furniture, mattresses and related products.

ORW, the seller in this deal, owns a 70% stake in PKBOR and wholly owns ORICD. The remaining shareholdings in PKBOR is 20% held by Permodalan Kedah Bhd and 10% by Jingshi Holdings (M) Sdn Bhd.

In its reply to Bursa Malaysia on Monday, HHRG also disclosed detailed shareholding structure in ORW, whereby Datin Chok Chew Lan and Charmaine Goh Min Yee own 33.89% each, Julian Goh Sean Loong and Eugene Goh Jet Shen own 11.11% each, while Ng Ying Ying owns a 10% stake.

HHRG said the land’s registered owner is Menteri Besar Kedah Incorporated (MBKI), but PKBOR and ORICD are the beneficial owners of the land.

The disclosure revealed that PKBOR had on Jan 9, 2023 bought the land from MBKI for RM24.3 million, and on the same day disposed of 80 acres of it to ORICD for RM12.96 million.

HHRG last week told Bursa Malaysia that a definitive agreement to buy 51% stakes in PKBOR and ORICD is conditional upon satisfactory due diligence, and if the conditions are not satisfied, the acquisition may be terminated, and the earnest deposit will be refunded.

If the acquisition materialises, HHRG said it will finance it entirely in cash through internally-generated funds.

As of Dec 31, 2023 (3QFY2024), HHRG’s cash and cash equivalents stood at RM65.6 million, while having short-term borrowings of RM11.96 million, consisting of RM9.55 million bank overdrafts, RM1.73 million term loans and RM671,000 in hire purchase.

The group’s long-term borrowings stood at RM25.53 million as at 3QFY2024, consisting of RM24.53 million term loans and RM1 million in hire purchase.

For the nine-month period ended Dec 31, 2023 (9MFY2024), HHRG’s net profit fell 61% to RM6.83 million from RM17.39 million in the previous corresponding period while revenue declined 22% to RM94.88 million from RM121.04 million.

HHRG said its performance for 9MFY2024 was weighed by higher production costs and moderation of sales.

“The decline in revenue was due to the softening demand in biomass, furniture and mattresses, both locally and in the export market, especially from the European market,” it said in its quarterly result announcement.

HHRG’s largest shareholder is GH Consortium Sdn Bhd, owning a 30.06% stake followed by CFamillie Holdings Sdn Bhd’s 17.8% shareholdings.

The group’s executive chairman Datuk H’ng Choon Seng, who owns a 3.8% direct stake in HHRG, is deemed to have indirect interest in GH Consortium together with Goh Boon Leong, whose direct interest was 0.2%.

Another two shareholders Ch’ng Chen Mong and Tan Poh Cheng are deemed to have indirect interest in CFamillie.

The share price of HHRG, which has dropped 67% year to date, closed half sen or 2.4% lower at 20 sen, giving it a market capitalization of RM173.57 million.