Posted on 23 Aug 2017
WZ Satu Bhd, a civil engineering and infrastructure firm, is exiting the steel trading business on expectation of a challenging operating environment and lacklustre financial performance, amid limited growth in the future.
The decision was formalised after the group inked a conditional share sale agreement with major shareholder Tan Jing Xing to dispose of its entire 100% stake in WZ Trading Sdn Bhd for RM22.8 million.
Jing Xing, 26, is the daughter of Tan Ching Kee, a former senior executive director of WZ Satu who passed away in February. Ching Kee was previously responsible for the steel division of WZ Satu and its subsidiaries.
"The proposed disposal is in line with the company's ongoing strategy to rationalise its investments to allow the group to deploy its resources more efficiently to grow the other existing core businesses," WZ Satu said in a filing with Bursa Malaysia.
WZ Satu said WZ Trading was back in the black in the financial year ended Aug 31, 2016 (FY16) after reporting losses in the previous two years.
"Although its financial performance improved slightly to deliver a marginal net profit of RM0.63 million for FY16, WZ Trading recorded poor return on equity and return on assets at 5.5% and 2.2% respectively for the said financial year," WZ Satu noted.
On WZ Trading's valuation, WZ Satu said the RM22.8 million disposal price tag of was pegged at price-to-book value of 1.99 times and price-earnings of 35.97 times, both of which were at a premium to range of comparable peers that are listed on the local bourse.
In disposing of WZ Trading, WZ Satu said its investment in the steel trading unit will be realised at a reasonable price, which is expected to net a disposal gain of RM10.87 million.
WZ Satu said proceeds from the disposal of WZ Trading will be used as working capital, which may include payment of trade and other payables, employees' salaries, wages and directors' emoluments, selling, distribution and marketing expenses as well as other day-to-day operating expenses.
"In addition, the proceeds from the proposed disposal will strengthen the group's liquidity and cash position, and provide it with additional working capital for the group's existing and future projects," WZ Satu said.
WZ Satu expects the disposal deal, which is advised by Hong Leong Investment Bank Bhd, to be completed within the first half of 2018.
Once it completes the disposal, WZ Satu said it will "re-divert" its resources to focus on the growth of its other core businesses.
WZ Satu is controlled by its executive chairman and chief executive officer Tengku Datuk Seri Uzir Tengku Datuk Ubaidillah, a member of the Pahang royal family.
Shares in WZ Satu closed unchanged at RM1.14 today, for a market capitalisation of RM397.72 million.
