KHIND HOLDINGS BERHAD ( KHIND OR THE COMPANY )

Transcription

1 KHIND HOLDINGS BERHAD ( KHIND OR THE COMPANY ) PROPOSED DIVERSIFICATION OF THE BUSINESS OF KHIND AND ITS SUBSIDIARIES ( KHIND GROUP OR GROUP ) INTO PROPERTY DEVELOPMENT, PROPERTY CONSTRUCTION AND PROPERTY INVESTMENT ( PROPOSED DIVERSIFICATION ) 1. INTRODUCTION On behalf of the Board of Directors of Khind ( Board ), Public Investment Bank Berhad ( PIVB ) wishes to announce that the Company proposes to undertake a proposed diversification of the business of the Khind Group into property development, property construction and property investment. Further details of the Proposed Diversification are set out in the ensuing sections of this announcement. 2. DETAILS OF THE PROPOSED DIVERSIFICATION Khind is principally engaged in investment holding and the provision of management services whilst its subsidiaries are mainly involved in the manufacture, distribution and sale of electrical home appliances, household goods and electrical products. In line with Khind s expansion over the years, the current head office of the Group at Bukit Jelutong, Shah Alam will not be sufficient to cater for its operations and the Group has been considering moving their corporate office to a larger location that can better cater for the increased floor space requirements of the Group. On 1 June 2010, the Board announced that Khind had, on even date, entered into a sale and purchase agreement with Bandar Setia Alam, a wholly-owned subsidiary of S P Setia Berhad, for the acquisition of a vacant land in Setia Alam ( Land ) for the total consideration of RM7,840,800. The above acquisition was completed on 30 December 2011 and the Land was subsequently transferred to Khind s wholly-owned subsidiary, Khind Properties (formerly known as Khind Technology Centre ) ( Khind Properties ), on 3 June The Group had acquired the Land with the initial intention of developing the Land into a commercial office building, to be used partly for its own use and partly to be rented out to third party tenants. Whilst considering the various designs and development plans of the new office building, as well as taking into account the market demand for offices in the vicinity, the Board had also identified an opportunity for the Group to maximise the utilisation of the Land by incorporating a retail component together with service apartments in the development plan. In line with the above, the Group s maiden venture into the new business segments will consist of the development of a mixed-use development on the Land ( Planned Development )

2 The Planned Development is expected to result in a diversion of 25% or more of the net assets ( NA ) of the Group to an operation which differs widely from the current operations of the Group and is expected to contribute 25% or more of the net profits of the Group. As such, the Board proposes to seek the prior approval for the Proposed Diversification from the shareholders of the Company at an extraordinary general meeting ( EGM ) to be convened pursuant to Paragraph 10.13(1) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. Notwithstanding the Proposed Diversification, the Board intends to continue with the Group s existing business in the same manner. 2.1 Information on the Land The Land is currently vacant and owned and registered under Khind Properties. Further information on the Land is as follows: Title No./Lot No. : HS(D) , PT 29362, Mukim of Bukit Raja, District of Petaling, Selangor Darul Ehsan Postal address : PT 29362, Persiaran Setia Dagang, Setia Alam, Section U13, Shah Alam, Selangor Darul Ehsan Land tenure : Freehold Category of land use : Building (Bangunan) Land area : 6, square meters (approximately 65,340 square feet ( sq. ft. )) Express condition : Commercial building (Bangunan perniagaan) Restriction of interest : None Encumbrances : Charged by Khind to Public Bank Berhad, registered on 27 December 2011* and by Khind Properties to Public Bank Berhad, registered on 3 June 2015 Net book value as at 31 December 2014 Note: : RM7,841,000 * Khind is in the process of discharging this charge in view of the transfer of the Land to Khind Properties, which was completed on 3 June Information on the Planned Development Based on current plans, the Planned Development is expected to comprise of the following components: (i) a one (1)-storey commercial floor and a one (1)-storey mezzanine floor comprising of the building lobby, property management offices, utilities and retail space on both floors. The commercial floor has an estimated gross floor area of 23,643 sq. ft. while the retail space within has an estimated net lettable area of 12,628 sq. ft.; - 2 -

3 (ii) (iii) (iv) (v) an eight (8)-storey podium carpark of approximately 597 carpark bays with an estimated gross floor area of 218,188 sq. ft.; a one (1)-storey amenities floor and a one (1)-storey mezzanine floor comprising of a multi-purpose hall and apartment facilities with an estimated gross floor area of 35,129 sq. ft.; an eight (8)-storey office wing with a total estimated gross floor area of 54,106 sq. ft. and an estimated net lettable area of 47,044 sq. ft. ( Offices ); and a seventeen (17)-storey apartment wing comprising 198 units of service apartments of between 801 sq. ft. and 1,035 sq. ft. with a total estimated gross floor area of 194,449 sq. ft. and an estimated net sellable area of 162,785 sq. ft. ( Service Apartments ). The first two (2) floors of the Planned Development will comprise the commercial and mezzanine floors, on top of which will be constructed an eight (8)-storey carpark and above which will be the amenities floors. The Offices and Service Apartments will be constructed beside each other on top of this base as illustrated in the table below: No. Floors Components (i) 1 st and 1M Commercial and mezzanine floors (ii) 2 nd to 9 th Carparks (iii) 10 th and 10M Amenities floors (iv) 11 th to 18 th Offices (v) 11 th to 27 th Service Apartments The commercial and mezzanine floors will be retained by the Group after completion, save for the retail space on both commercial and mezzanine floors which may be utilised for the Group s own use and/or for renting out to third party tenants. The Service Apartments and a portion of the carpark bays will be made available for sale to third parties. The remaining carpark bays are planned to be retained for the Group s own use and/or for renting out to third party tenants. The number of carpark bays to be made available for sale and to be retained by the Group cannot be determined at this juncture and will be subject to amongst others, the demand for the Planned Development upon the launch and the then prevailing market conditions. The amenities floors containing the facilities for use by the apartment tenants as well as a multi-purpose hall will be retained by the Group

4 A majority of the Offices will be retained for the Group s corporate office. Nevertheless, the portion to be retained may be subject to change, depending on the future floor space requirements of the Group as well as the demand for the Offices upon the completion of the Planned Development. The details of the Planned Development, including the specifications of the development components or the Group s plans to retain, sell or rent out the components may be subject to change, depending on the prevailing economic condition as well as regulatory considerations. The estimated gross development value ( GDV ) and the gross development cost ( GDC ) of the respective components are tabulated below: No. Component GDV (RM 000) GDC (RM 000) (i) Commercial and mezzanine floors *10,100 7,350 (ii) Carparks *6,400 5,600 (iii) Amenities floors *4,200 3,800 (iv) Offices *23,500 17,950 (v) Service Apartments 105,800 77,800 Note: Total 150, ,500 * All these components will be retained by the Khind Group. The estimated GDVs of the components are for illustrative purposes only. The estimated GDV and GDC above are indicative values and may be subject to change resulting from amongst others, variations to the final design, construction costs, the pricing, timing and demand for the Planned Development upon launch and the then prevailing market conditions. The application for the development order dated 13 April 2015 was submitted to Majlis Bandaraya Shah Alam ( MBSA ) on 15 April 2015 and the building plan will be submitted to MBSA within three (3) months after the receipt of the approval for the development order. The construction of the Planned Development is expected to commence within one (1) year after obtaining the approvals from MBSA, the shareholders of Khind in respect of the Proposed Diversification as well as any other relevant authorities, which is expected to be by the first (1 st ) quarter of The completion of the Planned Development is expected to be within thirty-six (36) months after the commencement of construction. However, the actual commencement and completion dates of the Planned Development will depend on amongst others, the market conditions of the property market in the future

5 2.3 Sources of funding for the Planned Development The construction of the Planned Development is expected to cost approximately RM million (excluding financing cost) and will be funded via a combination of bank borrowings, progressive sales billings and internally-generated funds, the proportion of which has yet to be determined as at the date of this announcement. The Company intends to launch the development of the Service Apartments first to commence generating cash flow from the progressive sales billings. The actual proportion of the sources of funds will depend on, amongst others, the take-up rate of the units of the Service Apartments. 2.4 Key management team Pursuant to the Proposed Diversification, the Board intends to grow this new business segment into one of the future core businesses of the Group. On 1 May 2015, the Group had re-designated Mr. Chang Kok Sooi ( Mr. Chang ) from his prior role as the executive director of Khind-Mistral Industries, (a wholly-owned subsidiary of Khind), to be the project manager responsible for the business planning and management of the Planned Development in the initial stage. Mr. Chang graduated from National Cheng Kung University, Taiwan with a degree in electrical engineering in He started his career as an engineer with Sigma Cable (S) Pte Ltd in 1983, whereby he was involved in the technical activities of the industrial engineering department. Mr. Chang subsequently joined Syarikat Wire Malaysia as a production engineer in He subsequently joined the Khind Group s manufacturing division as a senior engineer in 1992, and had gradually rose through the ranks, eventually becoming the executive director of Khind-Mistral Industries in 2014 whereby he was responsible for the overall management of the subsidiary. While working at Khind, Mr. Chang had been involved in managing and overseeing several of the Company s factory expansion and refurbishment projects in 1992 to His main responsibility was to assist in the planning and organising of the projects, including monitoring the construction team and the progress of the projects, coordinating the regulatory approvals required and liaising with all parties involved. In this regard, he has the relevant experience to lead and manage the Planned Development through the initial stage

6 As at the date of this announcement, Mr. Chang is the only personnel overseeing the Planned Development. Upon the successful implementation of the Proposed Diversification and the finalisation of the Group s plans for the Planned Development which are anticipated to be by the fourth (4 th ) quarter of 2015, the Group intends to appoint Adept Housing Development ( Adept ), a member of the Tropika Group of companies (a collection of companies with common shareholders, management and branding, which are involved in property development and/or construction) ( Tropika Group ), as the project management company for the Planned Development. Adept has agreed to participate in the project management of the Planned Development via its letter to Khind dated 4 June Adept is a property development company founded on 8 March 2010 by the key personnel of the Tropika Group (whose details are disclosed below). Adept will leverage on the expertise of the Tropika Group for this project. Adept is mainly involved in the property development business. Adept has in the past, completed the following projects: The development of forty-five (45) units of three (3)-storey super-link houses in Taman Bukit Suria, Mukim Cheras The development of twenty (20) units of three (3)-storey semi-detached houses and nine (9) units of town villas in Taman Bukit Suria, Mukim Cheras Approximate project value (RM million) timeframe Years 2010 to Years 2012 to 2013 The other companies of the Tropika Group are also currently involved in the following projects: The development of two (2) twenty-five (25)-storey buildings comprising 636 units serviced apartment identified as the Pavana Residence, KM 17 Pantai Puteri, Tanjung Keling, Melaka ( Pavana Residence ) The development of one (1) ten (10)-storey building comprising 124 units of Rumah Selangorku Type D and twenty-four (24) units of Rumah Selangorku Type A at Lot & Lot 44450, Mukim Cheras ( Rumah Selangorku ) Approximate project value (RM million) Estimated project timeframe Years 2014 to Years 2015 to

7 The Tropika Group was formed by a team of experienced key personnel, the details of which are as follows: (i) Mr. Pua Yow Liang ( Mr. Pua ) Mr. Pua, aged 53, is one of the Directors and founders of the Tropika Group of companies. He has over twenty-nine (29) years of experience in the property development and construction industries. He graduated from Universiti Sains Malaysia with a Degree in Housing, Building and Planning, majoring in Building Economics and Management in Mr. Pua began his career in 1986 as a marketing executive with a local property development company. After a career in multiple property development companies in both marketing and project management roles, Mr. Pua ventured into the property development business together with a partner in 1995 and had successfully completed several property development projects in Wilayah Persekutuan, Negeri Sembilan Darul Khusus and Pahang Darul Makmur. He was also an executive director of a public listed company heading its property division from 2003 to Mr. Pua had in the past, been involved in, amongst others, the following projects: Seven (7) blocks of six (6)- storey apartments comprising of 980 units, two (2)-storey shop-office comprising of fourteen (14) units, a clubhouse and waterpark in Port Dickson, Negeri Sembilan known as Tiara Beach Resort One (1) block of nine (9)- storey medium cost apartments comprising of 131 units in Shah Alam, Selangor, known as Subang Suria Apartment Thirty-three (33)-storey corporate tower & thirty-three (33)-storey service apartment and hotel suites comprising of 150 units and 248 units respectively, known as D Tiara Hotel Suites & Corporate Tower Company Ascentland Teratak Cipta Magic Coast Position/ Role Approximate project value (RM million) timeframe Director Years 2001 to 2004 Director Years 2004 to 2007 Director Years 2007 to

8 On 31 July 2010, he resigned from the public listed company and subsequently formed the Tropika Group of companies together with Mr. Lawrrence Heng Chiang Chew ( Mr. Heng ) and Mr. Julian Lim Yew Yong ( Mr. Lim ). Mr. Pua is responsible for the day-to-day operations of the companies of the Tropika Group and has been instrumental in its growth throughout the years. Mr. Pua is currently overseeing both the Pavana Residence project and the Rumah Selangorku project. (ii) Mr. Lawrrence Heng Chiang Chew Mr. Heng, aged 42, is one of the Directors and founders of the Tropika Group of companies. He has over eighteen (18) years of experience in the engineering and construction industries. He graduated with a Bachelor of Engineering from Universiti Putra Malaysia ( UPM ) majoring in civil and environment, Master of Science from UPM majoring in Structural Engineering in 2004 and obtained a Master of Business from the University of Newcastle, Australia in Mr. Heng started his career in 1997 as a design engineer at a consultancy firm. He subsequently joined a local construction company in 1998 as a site engineer, eventually rising up to be a senior project manager in In 2006, Mr. Heng founded his own construction firm and has since completed construction projects with a total value of RM million. Mr. Heng had in the past, been involved in, amongst others, the following projects: Company Position/ Role Approximate project value (RM million) timeframe Thirteen (13) schools in Selangor Pembinaan Punca Cergas Coordinator Years 1998 to 1999 Two (2) blocks of eighteen (18) storey low cost apartments comprising of 1,256 units Pembinaan Punca Cergas Assistant Manager One (1) primary school in Damansara, Selangor Pembinaan Punca Cergas Manager One (1) secondary school in Negeri Sembilan and one (1) primary school in Kuala Lumpur Pembinaan Punca Cergas Senior Manager Hypermarket in Muar, Johor known as KCC Mart Baxtium Chief Operating Officer 7.12 Year

9 Company Position/ Role Approximate project value (RM million) timeframe 1,118 units of apartments (New Township) in Section 6, South Parand, Tehran, Iran Baxtium Chief Operating Officer Years 2007 to 2009 Thirty-five (35)-storey office and a thirty-three (33)-storey hotel at Jalan Tun Sambanthan, Kuala Lumpur Baxtium Chief Operating Officer Years 2007 to 2011 One (1) block of twentyone (21)-storey medium cost apartments in Taman Kobena, Cheras, Kuala Lumpur Baxtium Chief Operating Officer Years 2010 to 2011 Thirty-six (36)-storey office building in Seksyen 52, Petaling Jaya, Selangor Baxtium Chief Operating Officer 9.60 Year 2014 In 2010, he, together with Mr. Pua and Mr. Lim (as defined below) formed the Tropika Group of companies. Mr. Heng is currently involved in the Rumah Selangorku project as the project director. (iii) Mr. Julian Lim Yew Yong Mr. Lim, aged 45, is one of the Directors and founders of the Tropika Group of companies. He has over twenty (20) years of experience in the engineering and construction industries. He obtained a Diploma in Building Technology in 1994 and a Master Degree in Management from the United Kingdom in In 1996, Mr. Lim returned to Malaysia and worked as a site engineer at a local construction company. In 1999, he joined another construction company as a project manager and was promoted to general manager in 2004, a post he held till In May 2007, he became the project director of Baxtium

10 Mr. Lim had in the past, been involved in, amongst others, the following projects: Company Position/ Role Approximate project value (RM million) timeframe Thirteen (13) blocks of 4/5- storey buildings comprising of 1,380 units of mediumcost apartments in Serendah, Hulu Selangor known as Anggerik Apartments Fairway Terrace Manager Years 1999 to ,322 units of low-cost apartments in Serendah Hulu Selangor known as Teratai Apartment Fairway Terrace Manager Years 2001 to 2002 Two (2) blocks of eighteen (18)-storey apartments with three (3)-storey car park and basement in Damansara Perdana known as Perdana View Condominium Fairway Terrace Manager Years 2002 to 2004 Fifteen (15) blocks comprising of 285 units of low/medium-cost apartments in Bukit Beruntung, Serendah, Hulu Selangor known as Dahlia Apartments Fairway Terrace General Manager Years 2004 to 2006 Fifteen (15) blocks comprising of 375 units of low/medium-cost apartments in Bukit Beruntung, Serendah, Hulu Selangor Fairway Terrace General Manager Years 2004 to ,118 units of apartments (New Township) in Section 6, South Parand, Tehran, Iran Baxtium Director Years 2007 to 2009 In 2010, he, together with Mr. Pua and Mr. Heng formed the Tropika Group of companies. Mr. Lim is currently involved in the development of the Pavana Residence project as the project director. For the Group s maiden venture into property development and property construction, the project management company will be responsible for, amongst others, assisting the Group in assembling the necessary team of external consultants, finalising the architectural concept, obtaining the necessary approvals, supervising the contractors and other external consultants and advising on the marketing and sale of the Service Apartment. The Group intends to leverage on the expertise and experience of the Tropika Group, under the close supervision of Mr. Chang as the project manager

11 Moving forward, the Group will leverage on the expertise of the project management company and will also plan to establish an internal team with experience in amongst others, engineering, project management and marketing to manage the Planned Development as well as the Group s future property development and property construction activities. The size and structure as well as the future recruitment process of the internal team has yet to be determined at this juncture, pending the finalisation of the development plan and the possibility of launching new projects in the future, availability of qualified and suitable candidates as well as the requirements of the Planned Development. 3. RATIONALE FOR THE PROPOSED DIVERSIFICATION Khind is principally engaged in investment holding and the provision of management services whilst its subsidiaries are mainly involved in the manufacture, distribution and sale of electrical home appliances, household goods and electrical products. While the Company intends to continue with its existing business, as part of the Group s business expansion plans, the Board had identified the Planned Development as an opportunity to diversify the Group s business into property development, property construction and property investment. The Proposed Diversification is intended to diversify its earnings base and provide a potential new source of revenue to the Group and is expected to offer growth prospects for the Group. The Planned Development which includes the development of the Service Apartments is expected to contribute to the revenue and earnings of the Group upon the sale of the units. In addition, the construction of an adjoining office wing will provide for the future office space requirements of the Group while the plan to rent out the unutilised floors of the Offices and the unutilised retail space on both commercial and mezzanine floors will provide the Group with recurrent rental income in the future. Moving forward, after having considered the overview and outlook of the Malaysian economy, property market in Malaysia as well as the potential profits derived from the Planned Development, the Board expects the Proposed Diversification to contribute positively to the Company s profitability, provide another platform for the Group s future growth and reduce the risk of dependency solely on its existing business. 4. EFFECTS OF THE PROPOSED DIVERSIFICATION 4.1 Issued and paid-up share capital The Proposed Diversification will not have any effect on the issued and paidup share capital as it does not involve any issuance of new shares by the Company

12 4.2 NA and gearing The Proposed Diversification is not expected to have any material impact on the NA and gearing of the Group for the financial year ending 31 December However, the profit contribution arising from the Planned Development is expected to have a positive impact on the future NA of the Group while the future gearing of the Group will depend on, amongst others, the manner of funding of the Planned Development. 4.3 Substantial shareholders shareholdings The Proposed Diversification will not have any effect on the substantial shareholders shareholdings of the Company as it does not involve any issuance of new shares by the Company. 4.4 Earnings and earnings per share ( EPS ) The Proposed Diversification is not expected to have any material impact on the consolidated earnings and EPS of the Group for the financial year ending 31 December Barring any unforeseen circumstances, the Board expects that the Proposed Diversification will contribute positively to the future earnings of the Group. 5. INDUSTRY OVERVIEW, OUTLOOK AND FUTURE PROSPECTS 5.1 Overview and outlook of the Malaysian economy The Malaysian economy registered a growth of 5.6% in the first quarter of 2015 (4Q 2014: 5.7%). Private sector expenditure remained the key driver of growth (9.6%; 4Q 2014: 8.3%). This contributed towards a strong domestic demand performance, which offset the negative contribution from net exports during the quarter. On a quarter-on-quarter seasonally-adjusted basis, the economy recorded a growth of 1.2% (4Q 2014: 1.8%). Domestic demand expanded by 7.9% in the first quarter of 2015 (4Q 2014: 5.7%), driven mainly by private sector expenditure. Private sector activity grew by 9.6% (4Q 2014: 8.3%), following continued growth in consumption and investment activities. Private consumption expanded at a stronger pace of 8.8% (4Q 2014: 7.6%), supported by stable labour market conditions and higher wage growth. Private investment expanded by 11.7% (4Q 2014: 11.1%), driven by capital spending in the export-oriented manufacturing sector and in the telecommunication and transport-related services industries

13 Public sector expenditure expanded by 2.5% in the first quarter (4Q 2014: 0.6%) driven mainly by higher growth in public consumption and a turnaround in public investment. Public consumption grew by 4.1% (4Q 2014: 2.5%), reflecting higher Federal Government spending on supplies and services amid moderate growth in emoluments. Following a rebound in spending on fixed assets by the Federal Government, public investment turned around and grew by 0.5% (4Q 2014: -1.9%). In terms of total investment, gross fixed capital formation expanded by 7.9% (4Q 2014: 4.3%), supported mainly by capital spending in the private sector. By type of assets, investments on structures expanded by 9.9% (4Q 2014: 10.4%), while machinery and equipment investment turned around to record a positive growth of 5.8% (4Q 2014: -0.8%). (Source: Economic and Financial Developments in Malaysia in the First Quarter of 2015, Bank Negara Malaysia) Despite a challenging external environment, the Malaysian economy is expected to register steady growth of 4.5% - 5.5% in 2015, supported mainly by sustained expansion in domestic demand amid strong domestic fundamentals and a resilient export sector. Domestic demand will continue to anchor growth in 2015, driven by private sector spending. After registering five consecutive years of above-average growth rates, private consumption is expected to grow by 6.0% in (Source: Annual Report 2014, Bank Negara Malaysia) 5.2 Overview and outlook of the Malaysian property market The performance of overall property market made a marginal rebound from 10.9% contraction recorded in A total of 384,060 transactions worth RM billion were recorded, indicating a marginal increase of 0.8% in volume and 7.0% in value. The residential sub-sector led the overall property market, with 64.4% contribution. This was followed by agricultural sub-sector (18.8%), commercial (9.3%), development land (5.5%) and industrial (2.1%). In terms of value, residential took the lead with 50.4% share, followed by commercial (19.5%), development land (13.3%), industrial (8.9%) and agricultural (7.8%). The on-going Economic Transformation Programme projects are expected to remain supportive to the country s economic growth. The retained infrastructure projects as proposed in the Budget namely the Kuala Lumpur- Singapore High-Speed Rail project, the Pan-Borneo Highway, the Light Rail Transit (LRT) 3 from Bandar Utama to Shah Alam, the second Mass Rapid Transit (MRT) Line from Selayang to Putrajaya as well as investment in the construction sector and the oil and gas industry i.e. the Pengerang Integrated Petroleum Complex are expected to drive the private investments

14 Residential sub-sector is expected to show moderate activity in the coming year. The uncertainty of the Goods and Services Tax effect on the property prices is seen as the hold-back factor amongst buyers though some may have taken the opportunity to enter into agreement prior to April Housing continues to be the main focus of national agenda, in particular affordable homes. The commercial sub-sector, in particular shopping complex and purpose-built office is expected to sustain, judging from the improved performance recorded in The moderating in starts would slow down the pace of new and upcoming developments to enable market to gradually absorb the new spaces coming on-stream. (Source: Press Release Property Market Report 2014, Valuation and Property Services Department, Ministry of Finance Malaysia) The construction sector is expected to continue to record high growth, albeit at a more moderate pace in After several years of robust growth, activity in the residential sub-sector is expected to increase at a more moderate pace due to lower housing approvals and property launches. Nonetheless, growth in the non-residential sub-sector is projected to be sustained, amid higher construction activity for industrial and commercial buildings. (Source: Annual Report 2014, Bank Negara Malaysia) 5.3 Prospects of the Proposed Diversification The Board has been reviewing potential opportunities to enhance the revenue sources of the Group which includes, amongst others, diversification into other viable business such as property development, property construction and property investment sectors given the positive outlook of the Malaysian economy and the overall Malaysian property market as detailed in Sections 5.1 and 5.2 of this announcement. The Planned Development will serve to facilitate as an entry point for Khind into the property development, property construction and property investment sectors. The Proposed Diversification is intended to provide a potential new source of revenue and earnings to the Group and is expected to offer good growth prospects for the Group. The Board expects the Group to derive benefits from the development of the Planned Development. Barring any unforeseen circumstances, the Board is cautiously optimistic that the Planned Development will contribute positively to the future financial performance of the Group. The Board is also of the view that the Planned Development and the Proposed Diversification represent an opportunity for the Group to expand its revenue sources beyond its current revenue base. Moving forward, the Group will seek further opportunities in the property development, property construction and property investment sector. (Source: Management of Khind)

15 6. RISK FACTORS 6.1 Business risk The Proposed Diversification is subject to certain risks inherent in the property development, property construction and property investment sectors which the Group has not been directly participating in the past. Such risks include, interalia, timely commencement or completion of the Planned Development, obtaining the timely approvals from the regulatory authorities, satisfactory performance of contractors, availability of labour and building materials, fluctuations in prices of building materials, general economic downturn, changes in demand for residential and commercial properties and changes in the legal and environmental framework within which the industry operates. The Group seeks to limit these risks through, inter-alia, market research and feasibility studies, keeping abreast with the latest developments in the property market including monitoring the consumers preference and lifestyle, careful planning, continuous review and close supervision on the progress of the project. Although the Board believes that the Group may derive significant benefits from the development of the Planned Development and steps will be taken to mitigate these business risks (such as keeping abreast with the latest developments on the property development market, careful planning and effective management), no assurance can be given that any changes in these factors will not have any material adverse effect on the Group. 6.2 Business diversification risk The Group is principally involved in the manufacture, distribution and sale of electrical home appliances, household goods and electrical products. As the implementation of the Proposed Diversification would result in the Group s business to include property development, property construction and property investment, the Group will be subject to new challenges and risks arising from the property development, property construction and property investment business in which the Group has not been directly participating in the past. The Group seeks to mitigate these risks by leveraging on the expertise and experience of the project management company to be appointed by the Group, as well as the expertise of an experienced internal team to be hired to manage the property development activities. However, there can be no assurance that any changes to these risk factors will not have a material adverse effect on the Group s business and earnings in the future

16 6.3 Political, economic and regulatory risks The property market can be characterised as cyclical in nature and is somewhat correlated to the general economic conditions of Malaysia. Adverse changes in political, economic and regulatory conditions in Malaysia could materially affect the financial and prospects of the property development, construction and property investment business. Political, regulatory and economic uncertainties include changes in labour laws, interest rates, fiscal and monetary policies, risks of expropriation of land by authorities and methods of taxation. Presently the residential and non-residential sub-sectors are expected to grow with the government s initiatives to improve the property sectors, given its agenda to transform the country into a high income nation by The Group seeks to limit these risks through, inter-alia, continuing to ensure its strict compliance with the laws and regulations under which the Group operates, implement prudent financial management and efficient operating procedures as well as constantly review its business development strategies in response to the changes in political, monetary, fiscal and economic conditions. Nevertheless, no assurance can be given that any changes to the political, regulatory and economic conditions would not have any material impact on the Proposed Diversification thus affecting the Group s financial performance in the future. 6.4 Competition risk Pursuant to the Proposed Diversification, the Group will face direct competition from both new entrants and existing players in the property development, property construction and property investment sector. The Group may also face disadvantages as a new entrant in the industry as it lacks the relevant track record and brand name as compared to the existing players which enjoy the privilege of their established brand name and reputation in the industry. The Group s competitiveness will largely depend on, amongst others, its sales and marketing strategies, product design, location of the development and its ability to price and differentiate its development to meet the needs of the target markets in future. However, there can be no assurance that these efforts will enable the Group to compete successfully and effectively with current and new entrants in the property development, property construction and property investment sector

17 6.5 Completion risk and delay in completion of the Planned Development There is a potential risk that the Planned Development may not be completed on time or that the returns from the Planned Development may have a longer payback period than expected due to various factors including, inter-alia, unavailability of skilled manpower and building materials, delay in obtaining approvals from the relevant authorities for the development, or the inability to secure adequate funding for the Planned Development. Adverse developments in respect of these factors can lead to interruptions or delays in completing a project, which can consequently result in cost overruns and affect the profitability and cash flows of the Group. Although the Group plans to mitigate this risk by appointing a reputable project management company to assist the Group in managing and implementing the Planned Development, and the Group will review and evaluate the market conditions and the work in progress and cashflow of the Planned Development on a continuous basis, there can be no assurance that the Planned Development or other development projects to be undertaken in the future will not be delayed and such challenges would have an adverse material impact on the Group s future financial performance. 6.6 Dependence on third party contractors The Group s success in property development, property construction and property investment is dependent on the support of third party contractors to ensure the continuous supply of services and/or construction materials. Any substantial limitation or sub-standard performance of the third party contractors and their inability to supply sufficient labour, whether skilled or unskilled together with sufficient quality services and building materials will inevitably disrupt the progress and/or quality of the Group s operations which may have an adverse effect on its profitability. The Group seeks to limit these risks through, inter-alia, working closely with the project management company throughout the development of the Planned Development, implementing appropriate control procedures such as careful planning and close monitoring of project progress to ensure the overall positive progress of the Planned Development and any of its future property development and property construction projects, as well as being selective in its choice of third party service provider(s) engaged by the Company to provide maintenance services for the completed development

18 6.7 Financing risk Property development and property construction are considered capital intensive businesses. The availability of, or the ability to secure adequate financing is critical to the Group s ability to embark on and complete development projects. The incurrence of debt to finance the development costs will result in new interest/principal servicing obligations to the Group. Besides increasing the gearing level, new bank borrowings incurred could result in operating and financial covenants being imposed that could restrict, to a certain extent, its operations and its ability to pay dividends to its shareholders. If the Group does not have adequate resources to finance the property development projects, this will have an adverse effect on its future property development and property construction business. In mitigating such risks, the Group will actively review its debt portfolio taking into account the level, structure and nature of borrowings and seek to adopt an optimal mix of financing that is cost-effective. While every effort is taken to ensure that no adverse effects would arise from the interest/principal servicing commitments, there is no assurance that it will not have any material impact on the Group s financial performance in the future. Nevertheless, the Group is expected to be able to reduce the gearing level via the future earnings and cashflows to be generated from development projects in the future. 7. APPROVALS REQUIRED AND CONDITIONALITY The Proposed Diversification is subject to and conditional upon the approval being obtained from the shareholders of the Company at an EGM to be convened and any other relevant authorities, if required. A circular to shareholders setting out the details of the Proposed Diversification will be despatched to the shareholders of the Company in due course. The Proposed Diversification is not conditional upon any other corporate exercises undertaken or to be undertaken by the Company. 8. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM None of the Directors and the major shareholders of the Company and/or persons connected to them have any interest, direct or indirect, in the Proposed Diversification. 9. DIRECTORS STATEMENT The Board, having considered all aspects of the Proposed Diversification, including but not limited to the rationale and justifications, financial effects and risks associated with the Proposed Diversification, is of the opinion that the Proposed Diversification is in the best interest of the Company

19 10. SUBMISSION TO THE AUTHORITIES The applications to the relevant authorities in relation to the Proposed Diversification are expected to be made within a period of two (2) months from the date of this announcement. 11. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Diversification is expected to be completed in the third (3 rd ) quarter of The Proposed Diversification will take immediate effect upon obtaining the shareholders approval at an EGM to be convened. 12. ADVISER PIVB has been appointed as the Adviser to Khind for the Proposed Diversification. This announcement is dated 23 July