Important Note for All Techbase Industries Investors !!!

Quick question, how many of you are currently interested in the rights issue of Techbase Industries?

If you are NOT INTERESTED at the moment, then perhaps, this article might save you thousands of Ringgits in your investment journey.

Fresh today, Techbase Industries had published their Abridged Prospectus for the rights issue of 5 ICULS for every 1 existing Techbase’s share you own. Excluding external factors, Techbase Industries’ current NTA is already RM1.070, which is a deep discount to the current share price of RM0.210 (?), representing a mere Price/Book ratio of 0.20 times.

Why YOU as an investor MUST subscribe to the rights?

Allow me to explain further.

Looking into the Q1FY2024 quarterly report of Techbase Industries, one would notice that the company is in fact, very cash rich. However, what piqued my interest is the substantial “Other Investments” column in the report.

What exactly is it?

For the uninitiated, Honsin Apparel S/B is actually the wholly-owned subsidiary of Techbase Industries. The company, had earlier invested into another asset rich company, South Malaysia Industries, or SMI. According to The Edge, another 51.0% indirect subsidiary of Techbase Industries, HiQ Media (Malaysia) Sdn. Bhd., collectively held 10.01% of shares in SMI together with Honsin apparel.

In 2023, SMI experienced Board tussle (tug-o-war for power in Board) with the emerging shareholder, Honsin Apparel as well as existing shareholders of the company.

Despite having strong cash generative assets, SMI's existing management team and Board of Directors had led the company into a loss making position for 6 financial years out of 9 financial years, and it has been in the red for the past 4 consecutive financial years.

One of the prime examples of what SMI is holding, is the 15-floored Menara SMI located between AmBank Group Leadership Centre and Menara Pan Global, the golden triangle in the heart of Kuala Lumpur.

According to iproperty’s website, Menara SMI current rental rate is RM17,480 per month for a 4,600 sq.ft. unit, and this is relatively reasonable, given how the property is situated in Lorong P. Ramlee. The property, according to the FY2023 annual report of SMI, is freehold, and the book value given is RM30.0 million, which is believed to be lacking of revaluation exercise for an extended period.

Also, the car park operations in Mukim Damansara, are also very good cash generative assets, so long story short. How could a company with such assets fall into a consistently money-losing position? I think, the answer lies within the existing management of SMI.

In April 2023, the Board members of SMI had “feared” for the change; they had rejected a request for an Extraordinary General Meeting (EGM) and Record of Depositors (RoD), which serves the purpose to record shareholders.

Nevertheless, SMI will soon be faced with the Annual General Meeting (AGM), in which we would see shareholders make the right move to vote against the reappointment of existing board members, and perhaps, we will finally see Honsin Apparel and HiQ Media (Malaysia) realise the value of SMI. If so, the shareholding onto SMI would balloon, and be reflected onto Techbase Industries.

With Techbase Industries currently being deeply undervalued, and a potential value discovery process with SMI, the rights issue of Techbase indeed poses a very attractive investment opportunity.

So now, back to Techbase Industries.

Based on the Abridged Prospectus, the company, existingly held RM67.35 million in cash, and post-rights issue, the company, on the Base Case Scenario, is likely to have a substantial war chest of over RM130.0 million to prepare for next stages of growth for the company.

As for now, the share price of Techbase Industries had retraced back to RM0.20 level, which was largely caused by the selloff by the previous major shareholders of Techbase Industries, JE Holdings Sdn. Bhd., the Lau family, who disposed of millions of shares due to their personal reasons.

However, this poses an even better opportunity for investors to leverage on the discounted price of Techbase Industries’ recent movement.

Now, do you know why exactly this is a perfect timing to subscribe and invest in Techbase Industries, and their rights issue?