Short Position - GETS Global in rough waters

LIEN Hoe Corp Bhd’s sale of some land in Johor Baru has raised the question if the value of land held by developers is truly reflective of the current market situation.

GETS Global in rough waters

GETS Global Bhd’s elucidation of the processes it needs to embark on highlights the challenges newcomers to the rubber glove industry will face.

The loss-making bus-operator recently said it was jumping into the glove-making bandwagon. Not surprisingly, that caused a massive spike in its share price, doubling its market capitalisation in the process to more than RM100mil.

But after getting queried by the stock exchange for more information about its new glove venture, GETS Global has laid out all the steps it needs to take to venture into this business.

First up, a massive outlay of RM226mil is going to be needed for this venture. That figure is more than double the company’s market capitalisation. The company says it will be raised by bank borrowings and internal funds.

However, GETS Global had only RM432,000 in its coffers as at its fourth quarter ended June 30,2020. It has RM21mil in loans and borrowings.

It is left to be seen if the company will be able to raise bank borrowings to venture into the glove business, which is seen by some as a sector that is operating at its peak. Competition is also intense.

To be sure, GETS Global has said that it is proposing a private placement of 158 million new shares at 55 sen per share to its major shareholder in order to fund the new venture. GETS Global has a new major shareholder in the form of one Teong Lian Aik with a 31.87% stake, making him the new largest shareholder.

But there are other challenges. In its reply to Bursa, GETS Global says it has to secure a string of regulatory approvals before it can embark on the glove-making business.

This includes approvals from local authorities, utility companies, the Malaysian Communications and Multimedia Commission and Indah Water Konsortium, to name a few.

In addition, it will also need a business licence issued by Majlis Perbandaran Taiping, approval from Lembaga Getah Malaysia, a manufacturing licence issued under the Industrial Coordination Act, 1975 as well as ISO9001 and ISO13485 certifications. GETS Global reckons that all the approvals would be secured by the second quarter of 2021. However, one wonders if glove prices will still be at attractive levels then.

Sale at a steep discount

Lien Hoe Corp Bhd’s sale of some land in Johor Baru has raised the question if the value of land held by developers is truly reflective of the current market situation.

On the face of it, Lien Hoe Corp Bhd is facing a loss of RM65.28mil from the disposal of a 69-acre parcel of land in Johor Baru.

However, deeper scrutiny on the announcement reveals that the company will record a loss only because it has booked in a high valuation on the parcel of land that was acquired in 2009, some 11 years ago.

Lien Hoe is selling the land to Countryland Realty Sdn Bhd for RM88.67mil cash or a reduced price of RM64.62mil if certain approvals for the land are not obtained. Among the approvals that Lien Hoe is supposed to get are the layout and conversion and without an obligation to build affordable homes on the parcel.

The 69 acres are part of a bigger parcel of land that was purchased in 2009 for RM33.13mil. But over the years, the value of the land would surely have appreciated and in accordance with accounting standards, the value is stated at RM166.78mil in the books of Lien Hoe.

Now, it has been sold at a discount of almost 50% of the value stated in the books, indicating how depressed the property market is.

According to the company, the price was arrived on a willing seller-willing buyer basis and also after taking into account an independent valuation that puts a price tag of RM90mil.

The group’s core businesses are in the hotel, property development and investment segments.

Property development has been suffering from an over-built situation for the past three years, while the Covid-19 pandemic has crippled the hotel business.

The economic slowdown weighs heavy on the group, Hence, even if the discount is steep, the group is prepared to sell the land because it needs the cash to keep the business going.

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