PETALING JAYA: Cosmos Technology International Bhd
is looking to strengthen its product development and manufacturing capabilities and address supply chain uncertainties through its proposed acquisition of electronic manufacturing services (EMS) company Orisystems Opto Sdn Bhd.
Managing director Datuk Chong Toh Wee said the group had been facing supply chain uncertainties, currency fluctuations and lengthy delivery times of up to seven or eight months for products sourced from overseas.
These challenges prompted the company to explore developing its own assembly and manufacturing capabilities.
“We had been assessing Orisystems for about one and a half years before the proposed acquisition and found that its technical capabilities and expertise would complement our business, allowing both companies to leverage their respective strengths,” Chong told StarBiz at the sidelines of Cosmos’ AGM yesterday.
Orisystems is involved in electronics manufacturing, including semiconductor-related components, chip-on-board technology for LED modules, smart-card modules and electronic components for aerospace applications.
Although Orisystems has not previously manufactured products for the water sector, Chong said the two companies had already begun collaborating on product design and development, with prototypes produced and undergoing testing.
“Proof-of-concept has yet to be completed. We are also looking at branding the products locally under our own brand.
“Essentially, the fundamental principles of EMS are similar across industries, whether the products are used in the water sector, semiconductor industry or other applications. Everything is the same principally.
“The difference is only the product range,” Chong said.
Earlier this week, Cosmos said it proposed to acquire a 51% stake in Orisystems for RM16.52mil via the issuance of new shares.
Additionally, the indicative purchase consideration of RM16.524mil will be fully satisfied through the issuance of 33.048 million new Cosmos shares at an issue price of 50 sen apiece.
The issue price represents a premium of 27.71% over Cosmos’ five-day volume-weighted average market price of 39.15 sen up to Oct 16.
The proposed acquisition is also subject to a profit guarantee under which Orisystems is required to achieve a profit after tax of at least RM3.6mil for each financial year ending Dec 31, 2027, 2028 and 2029, with a cumulative profit after tax of at least RM10.8mil over the three-year period.
Chong said Orisystems is keen to venture into the water sector, viewing it as a growth opportunity amid potential projects.
On the 50 sen per share issue price, Chong said he had presented Orisystems’ shareholders with Cosmos’ future prospects, including potential jobs, market share and government allocations, before they agreed to accept the offer.
Chong, however, viewed the 50 sen per share issue price as low given Cosmos’ growth potential, saying he believed a higher price could be justified as revenue increased and its price-to-earnings ratio declined.
He also regarded Orisystems’ willingness to accept the deal at 50 sen a share despite uncertainty over whether Cosmos could realise its potential as a sign of their trust in the company.
On why the RM16.52mil acquisition of a 51% stake in Orisystems was structured entirely through the issuance of new shares at 50 sen apiece, rather than cash or a combination of cash and shares, Chong said he wanted both parties to share in Cosmos’ future growth.
“If Orisystems takes cash, it is a one-off transaction. But if they hold our shares, when Cosmos grows, they also grow with us,” he said.
“This is about building a long-term relationship.”
Cosmos ended the session five sen lower at 37 sen yesterday.
The stock is trading at a historical price-to-earnings ratio of 96.05 times.
