It looked like a hurried exit for the Khoo family from apparel outfit Hing Yiap Group Bhd, with the sale of their 50.02% stake done at a notable discount to the stock’s market price and net asset value.
It is also learned that there was no due diligence undertaken by the buyer Everest Hectare Sdn Bhd as the transaction, valued at RM31.4 million, took only two days to conclude.
But in a recent interview, Hing Yiap’s major shareholder and managing director Khoo Henn Kuan told The Edge Financial Daily that the sale by his family was more of a “personal choice”, with little concern on the valuations of the company.
Khoo, an architect by profession, said it has been the family’s intention to retire from the apparel business for quite sometime now. In fact, he described his joining Hing Yiap 20 years ago as circumstantial.
“I ended up in this business back in the 1990s because my wife had asked me to join her in buying over the company from some partners who were exiting,” he said, adding that it was a viable option to enter the business then, when the 1998 economic recession dented architects’ income.
He cited that the apparel or garment business was generating some RM8 million in revenues at that time.
“I had told my wife that I would exit when I turn 50. I wanted to exit then but at that time the stocks were still trading at 50 sen,” said Khoo, who turns 56 this year and owned a direct and deemed interest of 48.37% in Hing Yiap.
To recap, Khoo and family members had on Monday sold 20.9 million shares representing a 50.02% stake in Hing Yiap to Everest for a cash consideration of RM1.50 per share or a total value of RM31.4 million.
On that same day, Everest launched an unconditional takeover offer to acquire all the remaining shares in Hing Yiap for RM1.50 cash per share.
At RM1.50, the offer was 16% below Hing Yiap’s closing market price of RM1.79 on Monday and a 24% discount to the group’s net asset value of RM2.35 as at end-September 2010.
Though the family had exited Hing Yiap at a low price in the view of public shareholders, the fact remains that it has actually taken 10 years for the stock to return to the RM1.50 level.
Hing Yiap shares (then known as Hing Yiap Knitting Industries Bhd) were trading at an average of RM1.58 in 1998 and even recorded an all-time high of RM3.928 on Feb 2.
However, hurt by the Asian financial crisis, the stock started to drop to below RM1.50 after April 2000, and subsequently worsened to below RM1 for the next 10 years. It had only returned to the RM1.50 level late last year.
“We took the recent opportunity to sell at RM1.50, because we don’t want to wait for another 12 years. Plus, there are many uncertainties ahead that can possibly bring down the share price again,” Khoo added.
The exit by Khoo and his family members was quite immediate and straightforward. According to him, the deal was discussed between the family and Everest just last weekend, with no due diligence required, and the decision to sell to Everest was made just two days later.
“After exiting Hing Yiap, I want to go back to architecture, do more public speaking and give back to the society. These are my passions,” Khoo added.
He said it was also timely to exit the apparel and garment industry. “As you know, there are many who have failed miserably in this industry.”
Nonetheless, he reckons that there are players in the industry that are doing well. Padini Holdings Bhd, for instance, is very profitable and has a high return on equity (ROE) of over 24% based on its FY10 ended June 30 numbers.
Khoo pointed out that Hing Yiap’s business model is different from that of Padini’s.
“Hing Yiap sells its products in departmental stores while Padini has their own outlets, a business model that could fetch some 60% gross profit margin.
Business model like Hing Yiap’s demands lesser margin at about 40%,” he adds.
Interestingly, Hing Yiap’s ROE is comparable, if not better, compared with some of its peers.
Based on FY10 ended June 30, Hing Yiap’s ROE was at almost 14%. This compares with Voir Holdings Bhd’s 7% (based on its Dec 31, 2009 numbers) and bigger players such as Bonia Corp Bhd’s 16% ROE based on its results for FY10 ended June.
That said, minorities might want to weigh on Hing Yiap’s prospect before they decide to follow its major shareholders’ move to exit the company.
After all, Hing Yiap’s new major shareholder, Everest, has ample of experience in the apparel industry as its owner, Ng Chin Huat, is presently the boss and major shareholder of privatised Asia Brand Corp Bhd.
“Everest is behind well-known brands like Anakku. The new shareholder knows the business and I believe they will run Hing Yiap’s operations well moving forward,” added Khoo.
When asked whether it is possible for Everest to inject Asia Brand into Hing Yiap, which will remain a listed entity, Khoo said: “That is a possibility, but this is something for you to ask them (Asia Brand). As for us (the Khoo family), we have no intention to come back to the corporate world, at least not in the garment business.” - by Isabelle Francis, theedgemalaysia.com
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