(PROPOSED ACQUISITION AND PROPOSED ASSUMPTION OF LIABILITIES ARE COLLECTIVELY REFERRED TO AS "PROPOSED TRANSACTION")

Transcription

1 MIECO CHIPBOARD BERHAD ("MIECO" OR THE "COMPANY") PROPOSED ACQUISITION BY MIECO OF THE ENTIRE ISSUED SHARE CAPITAL OF GREAT PLATFORM SDN BHD ("GREAT PLATFORM"), A WHOLLY-OWNED SUBSIDIARY COMPANY OF SYF RESOURCES BERHAD ("SYF" OR THE "VENDOR"), COMPRISING 5,000,000 ORDINARY SHARES FROM SYF FOR A PURCHASE CONSIDERATION OF RM7,063,341 ("PROPOSED ACQUISITION") AND THE PROPOSED ASSUMPTION OF LIABILITIES OWING BY GREAT PLATFORM TO SYF OF RM51,528,809 ("PROPOSED ASSUMPTION OF LIABILITIES"), TO BE SATISFIED ENTIRELY VIA CASH (PROPOSED ACQUISITION AND PROPOSED ASSUMPTION OF LIABILITIES ARE COLLECTIVELY REFERRED TO AS "PROPOSED TRANSACTION") 1. INTRODUCTION RHB Investment Bank Berhad ("RHB Investment Bank"), on behalf of the board of directors of MIECO ("Board"), is pleased to announce that MIECO had on 26 July 2017, entered into a conditional share sale agreement ("SSA") with SYF for the proposed acquisition of the entire issued share capital of Great Platform ("Great Platform Shares"), a wholly-owned subsidiary company of SYF for a purchase consideration of RM7,063,341 and the assumption of liabilities of RM51,528,809 owing by Great Platform to SYF. In aggregate, the total outlay of MIECO for the Proposed Acquisition and the Proposed Assumption of Liabilities amounts to RM58,592,150, to be fully satisfied via cash ("Total Purchase Consideration"). In view of the interests of Dato' Sri Ng Ah Chai ("Dato' Sri Ng" or "Interested Director") in both MIECO and SYF, the Proposed Transaction is deemed as a related party transaction pursuant to Paragraph of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ("Bursa Securities") ("Listing Requirements"). In this respect, the Board has appointed Crowe Horwath Advisory Sdn Bhd ("Crowe Horwath" or "Independent Adviser") to act as the independent adviser to advise the non-interested directors and noninterested shareholders of MIECO as to whether the Proposed Transaction is fair and reasonable so far as the non-interested directors and non-interested shareholders of MIECO are concerned, and whether the Proposed Transaction is to the detriment of the noninterested shareholders of MIECO. Please refer to Section 9 of this announcement for further details on the interests of director, major shareholder and/ or persons connected with Dato' Sri Ng. Details of the Proposed Transaction are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED TRANSACTION On 26 July 2017, MIECO had entered into a conditional SSA with SYF for the proposed acquisition of the entire issued share capital of Great Platform comprising 5,000,000 Great Platform Shares from SYF for a purchase consideration of RM7,063,341 and the proposed assumption of liabilities owing by Great Platform to SYF of RM51,528,809. In aggregate, the total purchase consideration amounts to RM58,592,150 shall be fully satisfied via cash. Great Platform is currently a wholly-owned subsidiary company of SYF, a public listed company currently listed on the Main Market of Bursa Securities. Upon completion of the Proposed Acquisition, MIECO will hold 100% equity interest in Great Platform and accordingly, Great Platform will become a wholly-owned subsidiary of MIECO. 1

2 2.1 Information on Great Platform Great Platform was incorporated on 19 December 2011 in Malaysia under the Companies Act, 1965 as a private limited company. Great Platform is principally engaged in the manufacturing and trading of particleboards and medium-density fibre boards ("MDF"). It currently operates from two (2) operating plants situated at Gemas and Simpang Pertang, which are in Negeri Sembilan, Malaysia. The maximum total combined production capacity of these two (2) plants is approximately 180,000 cubic meters per annum, of which the current production capacity is at approximately 140,000 cubic meters per annum. The current principal market for Great Platform's products is in Malaysia. The holding company of Great Platform is SYF, a public listed company listed on the Main Market of Bursa Securities which holds 100% equity interest in Great Platform. As at the date of this announcement, Great Platform does not have any subsidiary or associate company. As at the date of this announcement, Great Platform has an issued share capital of RM5,000,000 comprising 5,000,000 Great Platform Shares. Set out below are the details of the directors and their respective direct and indirect shareholdings in Great Platform as at the date of this announcement:- Name Nationality < Direct > < Indirect > No. of Great No. of Great Platform Shares % Platform Shares % Dato' Sri Ng Malaysian - - 5,000, *1 Dato' Sri Chee Hong Leong, JP *2 Malaysian Notes:- *1 *2 Deemed interested by virtue of his 50.91% direct equity interest in SYF, which in turn is a holding company of Great Platform pursuant to Section 8 of the Companies Act Dato' Sri Chee Hong Leong, JP is the Executive Director of SYF, details of which are set out in Section 2.10 of this announcement. A summary of the financial information of Great Platform for the past three (3) financial years up to the financial year ended ("FYE") 31 July 2016 and the latest unaudited 9-month financial period ended ("FPE") 30 April 2017 is set out below:- < Audited > Unaudited < FYE 31 July > FPE 30 April (9-month) RM RM RM RM Revenue 14,747,282 33,233,004 51,148,511 53,462,000 Profit before taxation ("PBT")/ Loss (1,029,525) 702,307 2,992,004 4,092,000 before taxation ("LBT") Profit after taxation ("PAT")/ Loss after (1,020,385) 667,876 2,999,433 4,098,000 taxation ("LAT") Total Equity/ Net assets ("NA") 2,249,211 2,917,087 5,934,800 10,032,000 Total borrowings 7,683,927 21,712,556 35,164,565 27,892,000 Gearing (times)

3 Based on the past three (3) financial years up to the FYE 31 July 2016 and the unaudited 9-month FPE 30 April 2017, the revenue of Great Platform were approximately RM14.75 million, RM33.23 million, RM51.15 million and RM53.46 million, respectively. In the FYE 31 July 2014, Great Platform recorded net operating loss of approximately RM1.02 million, however in the subsequent financial years, Great Platform managed to generate net operating profits of approximately RM0.67 million, RM3.0 million and RM4.10 million in the FYE 31 July 2015, FYE 31 July 2016 and unaudited 9-month FPE 30 April 2017, respectively. Further details on the financial information on Great Platform are set out in Appendix I of this announcement. On 10 June 2016, Great Platform had entered into a sale and purchase agreement with Eleplas Industries Sdn Bhd for a purchase of seven (7) adjoining parcels of freehold agriculture land measuring approximately hectares (approximately 1,744, square feet) in total area, together with factory/ warehouse buildings erected thereon, at Mukim Rompin, Daerah Jempol, Negeri Sembilan, Malaysia at the purchase price of RM13,750,000, of which this acquisition was completed on 13 June Subsequently on 13 January 2017, Great Platform entered into a sale and purchase agreement with Maju Weko Timber Industries Sdn Bhd for an acquisition of three (3) parcels of freehold industrial land measuring approximately hectares (approximately 934, square feet) in total area, together with buildings and structures erected thereon, at Tempat Intan Road, Mukim Gerik, Daerah Hulu Perak, Perak, Malaysia for a total consideration of RM15,500,000, of which this acquisition was completed on 15 May The aforesaid two (2) transactions were undertaken as part of Great Platform's future expansion plans. In addition, as mentioned in the earlier paragraph, at this juncture, Great Platform operates in two (2) operating plants located at Gemas, Negeri Sembilan, Malaysia ("Gemas Plant") and Simpang Pertang, Negeri Sembilan, Malaysia ("Simpang Pertang Plant"), which are in full operations, consisting of lands, buildings and machinery. For clarification, the maximum total combined production capacity of these two (2) plants is approximately 180,000 cubic meters per annum, of which the current production capacity is at approximately 140,000 cubic meters per annum. In conjunction with the Proposed Acquisition, a revaluation exercise on the lands and buildings together with the plant, machinery and equipment has been undertaken on the aforesaid two (2) existing operating plants, details of which are set out in Appendix II of this announcement. 2.2 Basis and justification of arriving at the Total Purchase Consideration The total purchase consideration of RM58,592,150 comprises a purchase consideration of RM7,063,341 for the Proposed Acquisition and RM51,528,809 for the Proposed Assumption of Liabilities. As at 30 April 2017, there was an outstanding amount of approximately RM51,528,809 owing by Great Platform to SYF due to the advances made by SYF, being the holding company of Great Platform to fund the past expansion of its business operations which include, amongst others, capital expenditures for the production machinery and working capital expenses required for the business operations. Pursuant to the SSA, MIECO will assume the aforesaid outstanding amount in full via cash, as part of the Total Purchase Consideration. 3

4 For the avoidance of doubt, MIECO will pay SYF the sum of RM51,528,809 pursuant to the Proposed Assumption of Liabilities. Subsequent to the assumption of the aforesaid liabilities by MIECO, this amount shall be owing by Great Platform to MIECO. The purchase consideration for the Proposed Acquisition of RM7,063,341 was arrived at, between MIECO and SYF on a willing-buyer willing-seller basis, after taking into consideration the latest audited NA of Great Platform of RM5,934,800 for the FYE 31 July 2016 and the revaluation exercise undertaken by MIECO on the lands and buildings together with the plant, machinery and equipment of Great Platform. Based on the valuation as appraised by KGV International Property Consultants (M) Sdn Bhd ("KGV International"), the total market value of Gemas Plant and Simpang Pertang Plant amounts to RM63,550,000 using the cost method of valuation (comprising of comparison approach for land component and cost approach for building component) and depreciated replacement cost method (for plant, machinery and equipment). For illustration purposes only, the adjusted audited NA of Great Platform based on the FYE 31 July 2016 after taking into account the market value of Gemas Plant and Simpang Pertang Plant are as follows:- FYE 31 July 2016 RM Audited consolidated NA 5,934,800 Less:- Revaluation deficit of Gemas Plant and Simpang Pertang Plant *1 (762,448) Adjusted NA 5,172,352 Note:- *1 The revaluation deficit is calculated as follows:- Plant Market value (a) (RM) Audited net book value as at the FYE 31 July 2016 (RM) Revaluation surplus/ (deficit) before taxation (RM) Tax (RM) Revaluation surplus/ (deficit), net of taxation (RM) Gemas Plant - Land 5,000,000 5,078,733 (78,733) - (78,733) - Buildings 11,500,000 10,610, ,133 (44,457) (b) 844,676 - Plant, machinery and equipment 14,500,000 13,268,605 1,231,395 (295,535) (c) 935,860 Simpang Pertang Plant - Land 2,450,000 2,080, ,869 (73,974) (d) 295,895 - Buildings 9,500,000 6,707,981 2,792,019 (558,404) (d) 2,233,615 - Plant, machinery and equipment 20,600,000 25,593,761 (4,993,761) - (4,993,761) Total 63,550,000 63,340, ,922 (972,370) (762,448) Notes:- (a) Based on the fair market valuation as appraised by KGV International. (b) Based on the real property gains tax of 5% as Gemas Plant was acquired in 2011 by Great Platform. This tax is applied as Great Platform is not involved in the business of trading of properties. (c) (d) Based on the deferred tax liabilities of 24% incurred due to the revaluation surplus. Based on the real property gains tax of 20% as Simpang Pertang Plant was acquired in 2013 by Great Platform. This tax is applied as Great Platform is not involved in the business of trading of properties. 4

5 Further details on the valuation method(s) adopted are set out in Section 2.3 of this announcement. Based on the above, the purchase consideration of RM7,063,341 for the Proposed Acquisition represents a premium of approximately 36.6% to the adjusted NA of RM5,172,352 of Great Platform for the FYE 31 July Further, based on the adjusted NA of Great Platform for the FYE 31 July 2016 of RM5,172,352, the price-to-book ratio implied by the purchase consideration of RM7,063,341 for the Proposed Acquisition is approximately 1.37 times. In addition to the above, the Board has also taken into account the price-to-earnings ratio ("PER") and enterprise value-to-earnings before interest, tax, depreciation and amortisation ("EV/EBITDA") multiple to justify the purchase consideration for the Proposed Acquisition of RM7,063,341 and the Total Purchase Consideration (comprising of the purchase consideration for the Proposed Acquisition and the amount owing pursuant to the Proposed Assumption of Liabilities), as set out below:- (i) For the FYE 31 July 2016, Great Platform recorded a PAT of RM2,999,433. As such, the PER implied by the purchase consideration of RM7,063,341 for the Proposed Acquisition is approximately 2.35 times. However, the PER implied by the total purchase consideration of RM58,592,150 (comprising of the purchase consideration for the Proposed Acquisition and the amount owing pursuant to the Proposed Assumption of Liabilities) is approximately times; and (ii) Based on the purchase consideration of RM7,063,341 for the Proposed Acquisition and the latest audited NA of Great Platform for the FYE 31 July 2016, Great Platform recorded an enterprise value of approximately RM40.28 million and an earnings before interest, tax, depreciation and amortisation of approximately RM8.21 million. As such, the EV/EBITDA multiple as implied by the purchase consideration of RM7,063,341 for the Proposed Acquisition is approximately 4.91 times. However, based on the total purchase consideration of RM58,592,150 (comprising of the purchase consideration for the Proposed Acquisition and the amount owing pursuant to the Proposed Assumption of Liabilities) and the latest audited NA of Great Platform as at the FYE 31 July 2016, Great Platform recorded an enterprise value of approximately RM91.80 million and an earnings before interest, tax, depreciation and amortisation of approximately RM8.21 million. As such, the EV/EBITDA multiple as implied by the Total Purchase Consideration is approximately times. A summary of the PER and the EV/EBITDA multiple as implied by the purchase consideration for the Proposed Acquisition and the Total Purchase Consideration is set out below:- PER (times) EV/EBITDA multiple (times) Purchase consideration purely for the Proposed Acquisition Total Purchase Consideration (comprising of the purchase consideration for the Proposed Acquisition and the amount owing pursuant to the Proposed Assumption of Liabilities)

6 The Total Purchase Consideration has also taken into consideration, the future prospects of Great Platform, details of which are set out in Section 4.3 of this announcement. 2.3 Salient features of the Valuation Certificates KGV International had appraised Gemas Plant and Simpang Pertang Plant in its valuation certificates dated 24 July 2017 using the cost method of valuation as primary method for the lands and buildings (comprising of the comparison approach for land component and cost approach for building component) and depreciated replacement cost method as the primary method for the plants, machineries and equipments. Under the cost method of valuation, an indication of value is obtained by adding to the estimated value of the land, taken as vacant, the depreciated reproduction or replacement cost of the building and other improvements. To determine the land value, KGV International adopts the comparison method. Under this method, the value of the property is determined by comparing it with recent sales and/ or listings of similar properties in the vicinity, or if not available, within similar localities. As no two properties are often identical, adjustments are then made for differences in factors such as location, physical characteristics and time element. Professional judgement is called upon in interpreting available date and making the adjustments. The building rates are dependent upon the construction, design, quality of finishes, extent of additional works done and condition of the building. KGV International has referred to the construction cost for industrial building as published by Juru Ukur Bahan Malaysia ("JUBM")-Langdon Seah Construction Cost Handbook Malaysia 2016 and also its own market survey/ enquiries. The investment approach serves as a counter-check only. This approach is concerned with the present worth of the future benefits that the property is capable of generating. This process involves the capitalization of the net annual proceeds that can reasonably be expected from ownership of the property by a rate of return (yield) comparable to that of similar investments. The depreciated replacement cost is the cost replacing the plant, machinery and equipment as new including costs for installation, infrastructure and professional fees and allowing for depreciation for physical, functional and economic obsolence. KGV International is of the opinion that the market value of the Gemas Plant and Simpang Plant in its existing condition, subject to the titles being free from all encumbrances and with vacant possession, is as follows:- Components Simpang Pertang Gemas Plant Plant Total (RM) (RM) (RM) Land 5,000,000 2,450,000 7,450,000 Building 11,500,000 9,500,000 21,000,000 Plant, machinery and equipment 14,500,000 20,600,000 35,100,000 Total 31,000,000 32,550,000 63,550,000 The details of Gemas Plant and Simpang Pertang Plant are summarized in Appendix II of this announcement. 6

7 2.4 Salient terms of the SSA (i) Sale and Purchase of Great Platform Shares Subject to the terms and conditions of the SSA, SYF shall sell and MIECO shall purchase Great Platform Shares free from all encumbrances and together with all rights and benefits that attach (or may in future attach) as at the completion date. (ii) Conditions precedent The purchase of Great Platform Shares is conditional upon:- (a) (b) (c) (d) (e) the conduct and completion of a legal due diligence by MIECO s solicitors on Great Platform, its business, operations and affairs to the satisfaction of MIECO; the procurement by SYF of the approval of its shareholders in general meeting for the disposal of Great Platform Shares; the procurement by MIECO of the approval of its shareholders in general meeting for the acquisition of Great Platform Shares; if applicable, SYF procuring that Great Platform obtains the relevant approval/ consent required under licences granted to Great Platform by the relevant authorities for the changes in the shareholding and board of directors of Great Platform subsequent to the acquisition of Great Platform Shares by MIECO from SYF; the written consents and approvals from the following Great Platform s financiers for the sale of Great Platform Shares to MIECO (if necessary): i. Public Bank Berhad pursuant to the term loan facilities granted to Great Platform; ii. iii. iv. OCBC Bank (Malaysia) Berhad pursuant to the term loan, bills and industrial hire purchase-i facilities granted to Great Platform; Affin Islamic Bank Berhad pursuant to the Ijarah term financing-i, cash line-i, bank guarantee-i and FX FER-I facilities granted to Great Platform; Al-Rajhi Banking & Investment Corporation (M) Berhad pursuant to the structured commodity financing-i facilities granted to Great Platform; and v. BMW Credit (M) Sdn Bhd pursuant to the hire purchase facility granted to Great Platform; (f) (g) the release (whether or not subject to conditions of closing or satisfaction of the other conditions precedent) of SYF from the securities, guarantees or indemnities given by or binding upon SYF in respect of any liability of Great Platform; and the procurement by SYF of the certificates of completion and compliance (temporary or otherwise) for one (1) building known as "Block B" and the extension structures of another building known as "Block C", both at Gemas Plant, from the relevant authorities. 7

8 (iii) Events on Completion (a) Completion shall take place at the registered office of Great Platform or such venue as may be mutually agreed upon by the parties on the completion date whereupon SYF shall deliver to MIECO the following:- i. the duly completed and signed instruments of transfer in favour of MIECO in respect of Great Platform Shares, together with the relative original share certificates; ii. iii. all the statutory and other books (duly written up to date) of Great Platform and its certificate of incorporation or registration and certificates of incorporation on change of name and common seal (if any); and any and all documents which are necessary for the transfer of the ownership of Great Platform Shares to MIECO, (Collectively, the "Documents"). (b) On the completion date, MIECO shall: i. pay or cause its financier to release the balance purchase price to SYF; and ii. on behalf of Great Platform, pay or cause its financier to pay the amount of liabilities owing by Great Platform to SYF. (c) If the Documents are not delivered by SYF, MIECO shall upon serving a written notice to SYF, be entitled (in addition to and without prejudice to all other rights or remedies available to it) to:- i. rescind the SSA; or ii. to seek redress to enforce performance on the part of SYF, with all costs incurred shall be borne by SYF. (d) Following the completion: i. SYF shall within 14 days from the completion date provide the interim management accounts of Great Platform for the month immediately preceding the completion date which has been duly verified and confirmed by an independent auditor to be appointed by the parties ("Interim Accounts") to MIECO; ii. MIECO shall within 7 days from the date of receipt of the Interim Accounts inform SYF whether MIECO is agreeable with the Interim Accounts. If MIECO is not agreeable with the Interim Accounts, MIECO shall notify SYF in writing and the parties shall enter into bona fide discussions to reach an amicable solution and to finalise an amended Interim Accounts ("Amended Interim Accounts"), within 7 days from the date of receipt of the said notice by SYF; 8

9 iii. based on the Interim Accounts or the Amended Interim Accounts, as the case may be: a. in the event there is a profit from the last account date of 31 July 2016 ("Last Account Date") until the date of the Interim Accounts or the Amended Interim Accounts (as the case may be), MIECO shall within 7 days from the date the parties agree on the Interim Accounts or the Amended Interim Accounts, as the case may be, procure the Company to declare and pay to SYF a dividend with an amount equivalent to the said profit PROVIDED ALWAYS THAT such declaration shall nevertheless leave the Company with sufficient working capital; or b. in the event there is a loss from the Last Account Date until the date of the Interim Accounts or the Amended Interim Accounts (as the case may be), SYF shall within 7 days from the date the parties agree on the Interim Accounts or the Amended Interim Accounts, as the case may be, pay to MIECO an amount equivalent to the said loss as compensation. (iv) Breach/ Termination (a) In the event that any party shall: i. neglect or by willful default fail or refuse or be unable to complete this transaction in accordance with the provisions in the SSA; or ii. materially breach any of the provisions of the SSA; the party not in breach of the SSA ("Non Defaulting Party") shall be entitled at its absolute discretion to elect either to: a. give termination notice to the party in default and if the party in default fails to remedy the breach(es) within fourteen (14) business days of receipt of the termination notice, the Non Defaulting Party may without further reference to the party in default terminate the SSA, in which event the provisions as prescribed in Section 2.4(iv)(b) and Section 2.4(iv)(c) of this announcement shall apply and thereafter the SSA shall be null and void and the parties shall have no further claims against each other save and except for any antecedent breaches; or alternatively; b. complete the SSA, without any prejudice to that party s right or rights to claim against the party in default any damages, losses, costs, expenses or outgoings whatsoever arising from or in connection with the events of Section 2.4(iv)(a)i. and Section 2.4 (iv)(a)ii. of this announcement. 9

10 (b) (c) (d) (e) In the event that the SSA is terminated in accordance with Section 2.4(iv)(a)a. of this announcement, the party in default shall, within fourteen (14) business days from the date after the expiration of the termination notice, pay to the Non Defaulting Party all the professional fees, disbursements and expenses incurred and paid or payable by the Non Defaulting Party in relation to or in connection with the SSA as evidenced by invoices and receipts. In the event that the party in default fails to pay any of the aforesaid monies within the said fourteen (14) business day period, then the party in default shall be further liable to pay interest on any amount remaining unpaid at the end of the said fourteen (14) business day period at the rate of eight per centum (8%) per annum, calculating on a daily basis, from the end of the said fourteen (14) business day period until the date of actual payment of the outstanding amount. Simultaneously with the events of Section 2.4(iv)(a) of this announcement, each party shall return all documents and things (whether in hard copies or electronic copies kept in DVD-ROMS, hard disk or any form) forwarded by the other party in relation to the SSA, save and except where MIECO requires the same for application for refund of any stamp duty paid pursuant hereto, in which case the documents and things shall be returned as soon as reasonably possible. If SYF is the party in default, SYF shall refund the deposit received by SYF to MIECO free from interest and SYF shall pay to MIECO the amount equivalent to the deposit as agreed liquidated damages. If MIECO is the party in default, the deposit paid by MIECO to SYF with any accrued interest shall be forfeited by SYF as agreed liquidated damages. 2.5 Mode of Settlement of the Total Purchase Consideration Pursuant to the terms of the SSA, the Total Purchase Consideration will be satisfied entirely by cash in the following manner:- Timing Payment terms Payments to be received RM % Upon execution the SSA of 10.0% of the purchase consideration for the Proposed Acquisition paid by MIECO on the date of the SSA as deposit ("Deposit") *1 706, On the completion date of the SSA *2 i. 90.0% of the purchase consideration for the Proposed Acquisition payable by MIECO to SYF ("Balance Purchase Price"); and 6,357, ii. The assumption of liabilities payable by MIECO to SYF 51,528, Total Purchase Consideration 58,592, Notes:- *1 *2 Deposit is held by MIECO's solicitor upon execution of the SSA and will be released by the solicitor to SYF on the date all the conditions precedent of the SSA (as set out in Section 2.4(ii) of this announcement) are fulfilled. This Deposit shall be refunded to MIECO in the event the SSA is terminated due to the event of default as set out in Section 2.4(iv)(a)i. and Section 2.4 (iv)(a)ii. of this announcement. Being 14 days from the date all the conditions precedent of the SSA are fulfilled. 10

11 2.6 Source of funding for the Total Purchase Consideration The Total Purchase Consideration shall be financed through a combination of bank borrowing and internally generated fund, the exact quantum of which has not been finalised at this juncture. Purely for illustration purposes, 70% of the Total Purchase Consideration which amounts to RM41,014,505 is assumed to be financed via bank borrowing while the remaining of RM17,577,645 is assumed to be financed through internally generated funds. 2.7 Liabilities to be assumed by MIECO As set out in Section 2.2 of this announcement, in conjunction with the Proposed Acquisition, MIECO will assume the amount owing by Great Platform to SYF of RM51,528,809 as part of the Total Purchase Consideration and will be paid via a combination of bank borrowing and internally generated fund. Save for the aforesaid obligation and liabilities in and arising from, pursuant to or in connection with the SSA for the Proposed Transaction, there are no other liabilities including contingent liabilities and/ or guarantees to be assumed by MIECO arising from the Proposed Transaction. 2.8 Additional financial commitment required Save for the total purchase consideration of RM58,592,150, there is no additional financial commitment required by MIECO to put the business of Great Platform onstream as it is an on-going business entity. 2.9 Original cost and date of investment in Great Platform The original cost of investment of SYF in Great Platform and the date of such investments are set out below:- Date of investment No. of Great Platform Shares Cost of investment RM ,999,998 1,999, ,000,000 3,000, Information on SYF SYF was incorporated as a private limited company under the name of Exclusive Symbol Sdn Bhd on 20 October 1995 in Malaysia under the Companies Act, On 2 February 1996, it changed its name to Tomisho Holding Sdn Bhd and subsequently to Tomisho Holdings Sdn Bhd on 27 November On 16 December 1997, SYF converted into a public limited company under the name of Tomisho Holdings Berhad and on 13 February 2004, it assumed its present name. SYF was listed on the former Second Board of Kuala Lumpur Stock Exchange (now known as Bursa Securities) on 8 March 2000 and subsequently transferred its listing status to the Main Board of Kuala Lumpur Stock Exchange (now known as the Main Market of Bursa Securities) on 3 August 2009, following the merger of the former Main Board and Second Board of Bursa Securities. 11

12 SYF is principally an investment holding company. Through its subsidiaries, SYF is engaged in the manufacturing and trading of rubber wood furniture products and component parts, particleboards and MDF as well as property development and construction activities. Based on its latest audited consolidated financial statement for the FYE 31 July 2016, the segmental results in respect of revenue and profit contributions are set out below:- Business segments Revenue *1 Profit RM'000 % RM'000 % Rubber wood furniture and component parts 190, , Particleboards and MDF 43, , Property development and construction 219, , Others * , Total 453, ,849 * Notes:- *1 *2 *3 Excludes inter-segment sales. Being investment holding activity. Profit prior to adjustments and eliminations of RM4.63 million. As at the date of this announcement, SYF has an issued share capital of RM154,809,753 comprising 619,239,012 ordinary shares (including 10,000 treasury shares). In addition, SYF has a total of 305,432,506 outstanding warrants with tenure of five (5) years expiring in 11 December 2019 with the exercise price of RM0.70 per ordinary share of SYF. The directors and substantial shareholders, together with their respective direct and indirect shareholdings in SYF as at the date of this announcement are set out below:- Name Designation Nationality/ Place of incorporation < Direct > < Indirect > No. of SYF shares % *1 No. of SYF shares % *1 Dato' Sri Ng Dato' Sri Chee Hong Leong, JP Cheong Yee Kiong Dr. Roslan bin A. Ghaffar Dato' Sri Thong Kok Khee Executive Chairman & Chief Executive Officer Executive Director Executive Director Senior Independent Non- Executive Director Non- Independent Non- Executive Director Malaysian 315,276, ,920, *2 Malaysian 62,156, Malaysian Malaysian Malaysian ,008, *3 12

13 Name Designation Nationality/ Place of incorporation < Direct > < Indirect > No. of SYF shares % *1 No. of SYF shares % *1 Datuk Mohamed Arsad bin Sehan Dato' Wong Gian Kui Dato' Mohamad Azmi bin Ali Insas Credit & Leasing Sdn Bhd Insas Berhad Independent Non- Executive Director Alternate Director to Dato' Sri Thong Kok Khee Independent Non- Executive Director Substantial shareholder Substantial shareholder Notes:- Malaysian Malaysian Malaysian Malaysia 48,008, Malaysia ,008, *4 *1 *2 *3 *4 Based on the total issued share capital of 619,229,012 ordinary shares in SYF (excluding 10,000 treasury shares). Deemed interested by virtue of the interest held via his spouse pursuant to Section 59(11)(c) of the Companies Act Deemed interested by virtue of his interest in Insas Berhad which in turn is a holding company of Insas Credit & Leasing Sdn Bhd pursuant to Section 8 of the Companies Act Deemed interested by virtue of its shareholding in Insas Credit & Leasing Sdn Bhd pursuant to Section 8 of the Companies Act RATIONALE AND JUSTIFICATION FOR THE PROPOSED TRANSACTION At present, MIECO mainly operates from its two (2) operating plants located at Kuala Lipis, Pahang and Gebeng, Pahang with a maximum particleboards production capacity of 900,000 cubic meters per annum. These two (2) operating plants mainly produce plain particleboards of E2 and E1 grades as well as downstream value added melamine faced particleboards. Generally, E2 and E1 grades particleboards are widely used materials for the production of cabinet furniture, interior decorations and roof as well as partition constructions while MFC is ideal for medium-duty or light applications such as door, drawer frontals and furniture components. Based on the latest audited consolidated financial statements of MIECO for the FYE 31 December 2016, MIECO and its subsidiaries ("MIECO Group") generate most of its revenue from the Malaysian market and currently has market presence in and is generating revenue from countries, amongst others, China and Hong Kong. On the other hand, Great Platform currently has its operations from two (2) operating plants located at Gemas and Simpang Pertang, all of which are located in Negeri Sembilan with a total maximum production capacity of 180,000 cubic meters per annum. Great Platform has a relatively smaller production capacity as compared to MIECO and mainly produces E2 grade particleboard and MDF. Generally, MDF is used for higher-end furniture, doors and laminated flooring production. Furthermore, the principal market of Great Platform is solely in Malaysia. 13

14 As the business activities of Great Platform is of similar to MIECO Group's business activities, with the participation of Great Platform in MIECO Group through the Proposed Transaction, it serves as an opportunity to MIECO for its immediate expansion of production capacity. In addition, MIECO would have the opportunity to penetrate into the existing customer base of Great Platform such as MDF market. With the combined customer base between MIECO and Great Platform, it also allows them to cross sell their products to a wider customer base thus increasing the market presence of the enlarged MIECO Group. The proposed acquisition of Great Platform by MIECO is deemed as a strategic move in view of the current production by Great Platform, its existing two (2) operating plants as well as the two (2) newly acquired lands and buildings, of which from the enlarged MIECO Group's perspective, the production lines of E2 grade particleboards is expected to increase accordingly. Premised on the foregoing, MIECO may free up its capacity and to explore the productions of E0 and super E0 grades particleboards which are generally categorised as higher grades of particleboards and could command better profit margins than E2 and E1 grades particleboards. As a result, MIECO may expand its varieties in respect of the product offerings by the enlarged MIECO Group which is in accordance with its long term plan to expand its products offerings. Please refer to Section 4.3 of this announcement for the prospects of Great Platform and the enlarged MIECO Group. 4. INDUSTRY OVERVIEW AND OUTLOOK AND FUTURE PROSPECTS OF THE MANUFACTURING INDUSTRY/ WOOD-BASED MANUFACTURING INDUSTRY 4.1 Overview and outlook of the Malaysian economy The Malaysian economy recorded a higher growth of 5.6% in the first quarter of 2017 (4Q 2016: 4.5%). Private sector activity was higher and remained as the main driver of growth. Growth was further lifted by higher exports, as increased demand for manufactured products led to a strong growth in real exports (9.8%; 4Q 2016: 2.2%). Real imports also increased at a faster rate of 12.9% (4Q 2016: 1.6%) on account of higher growth of capital and intermediate goods. On a quarter-on-quarter seasonallyadjusted basis, the economy recorded a growth of 1.8% (4Q 2016: 1.3%). Domestic demand growth increased to 7.7% in the first quarter of the year (4Q 2016: 3.2%), supported by continued expansion in private sector expenditure (8.2%; 4Q 2016: 5.9%) and the turnaround in public sector expenditure. Private consumption grew by 6.6% (4Q 2016: 6.1%). Household spending remained supported by continued expansion in employment and wage growth. The implementation of selected Government measures, including the higher amount of Bantuan Rakyat 1Malaysia cash transfers, also provided additional impetus to household spending. Public consumption recorded a stronger growth of 7.5% (4Q 2016: -4.2%) attributed to higher spending on both emoluments and supplies and services. Private investment grew at a robust pace of 12.9% (4Q 2016: 4.9%), following continued capital spending in the services and manufacturing sectors. Investments in machinery and equipment were higher during the quarter, supported by the implementation of several large-scale projects in the manufacturing sector. Business sentiments improved during the quarter amid the better international economic environment and more stable financial markets. Public investment registered a higher growth of 3.2% (4Q 2016: -0.4%), driven mainly by higher spending on fixed assets by public corporations. Gross fixed capital formation (GFCF) rose by 10.0% (4Q 2016: 2.4%), due to a turnaround in public investment and higher private investment growth. The stronger growth in total investment was due to broad based increases in capital spending in machinery and equipment (21.8%; 4Q 2016: 2.9%), structures (3.8%; 4Q 2016: 2.8%) and other types of assets (1.4%; 4Q 2016: - 2.0%). 14

15 On the supply side, most economic sectors expanded at a faster pace. The improvement in the overall growth was contributed primarily by the turnaround in the agriculture sector and higher growth in the manufacturing and services sectors. Growth in the agriculture sector rebounded as crude palm oil yields recovered from the negative impact of El Niño. The performance of the sector was also supported by a double-digit expansion in rubber production. In the manufacturing sector, growth was driven mainly by the electronics and electrical segment, in line with the continued favourable global demand for semiconductors. The domestic-oriented industries were supported by the continued demand for food-related products and a rebound in the motor vehicle production. The services sector expanded at a faster pace in the first quarter. Growth in the wholesale and retail sub-sector improved in line with higher household spending. The finance and insurance sub-sector also registered higher growth, supported by improvements in loan growth and capital market activity amid higher issuance of IPOs. Growth in the construction sector was stronger, supported by civil engineering activity in the petrochemical, power plant and transportation segments. In the mining sector, growth moderated on lower crude oil production, particularly in Sarawak and Peninsular Malaysia, as part of the global initiative to reduce oil production. The Malaysian economy continued to expand in the first quarter of 2017, driven mainly by domestic demand activity. Looking ahead, leading indicators such as the Department of Statistics Malaysia s composite leading index, Malaysian Institute of Economic Research ("MIER") Business Conditions Index and MIER Consumer Sentiments Index, point to continued expansion of the domestic economy. Private consumption will be sustained by continued wage and employment growth, with additional lift coming from various policy measures to raise disposable income. Investment activity is projected to expand, driven mainly by the implementation of new and ongoing projects in the manufacturing and services sectors. The stabilisation of commodity prices is also expected to lend support to investment activity in the mining sector. On the external front, exports are expected to benefit from the improvement in global growth, especially among Malaysia s key trading partners. Overall, the economy remains on track to expand as projected in On the supply side, the improvement in external trade will benefit the export-oriented industries in the manufacturing and services sectors, particularly the electronics and electrical industry and trade-related services. The agriculture sector will continue to recover as crude palm oil yields improve post-el Niño. Growth in the mining sector is projected to be supported by output from the ramping up of production in new oil and gas facilities. In the construction sector, new and existing civil engineering projects will drive the sector going forward. (Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter of 2017, Bank Negara Malaysia) In 2016, the Malaysian economy recorded a growth of 4.2% (2015: 5.0%) despite considerable external and domestic headwinds. The global economic landscape was challenging given the subdued global demand and low commodity prices. International financial markets were also subjected to heightened uncertainty with significant reversal of capital flows from emerging economies. This was driven by the unexpected political developments in the advanced economies, such as the UK and the US, and the macroeconomic policies adopted by these economies. Domestically, the economy continued to face headwinds from the higher cost of living amid soft employment conditions. Concurrently, business and consumer sentiments were affected by a confluence of global and domestic factors, including the heightened volatility in financial markets and the significant underperformance of the ringgit. Against these external and domestic challenges, all sectors of the economy recorded a modest expansion during the year. Domestic demand continued to anchor growth, supported mainly by private sector spending. Private consumption growth, in particular was sustained at 6.1% (2015: 6.0%), supported by continued employment and wage growth following the increase in minimum wage and civil servant salaries. 15

16 Government measures to boost disposable income such as the temporary reduction in employees' contribution to the Employee Provident Fund (EPF), higher Bantuan Rakyat 1Malaysia (BR1M) payouts and tax relief to lower-income tax payers also supported household spending. Public consumption growth moderated to 1.0% (2015: 4.4%) following the expenditure rationalisation adopted by the Government in early 2016 given the lower petroleum-related revenue because of low crude oil prices. Gross fixed capital formation (GFCF) expanded moderately by 2.7% in 2016 (2015: 3.7%) driven mainly by lower private investment growth due to weak profitability and business sentiments. Public investment recorded a smaller rate of decline in 2016 (-0.5%; 2015: -1.0%) due to the smaller contraction in spending on fixed assets by public corporations given the higher investment in the downstream oil and gas industry, and the transportation and utilities sub-sectors. On the supply side, all economic sectors continued to expand in 2016, with the exception of the agriculture sector. Agriculture production declined by 5.1% (2015: 1.2%), as crude palm oil (CPO) output was affected by the El Nino weather phenomenon. While growth in the services sector was higher at 5.6% (2015: 5.1%) following sustained demand in the consumer-related sectors, other sectors expanded more moderately. Overall, the strong fundamentals of the Malaysian economy have accorded Malaysia the ability to weather these external and domestic challenges. The diversified sources of growth in the economy have helped to contain the spillover effects of sectorspecific shocks. Stable labour market conditions amid continued wage growth continued to support household spending. Healthy financial institutions and ample domestic liquidity also ensured orderly financial intermediation. Notwithstanding the weak global demand, Malaysia's external position remained strong, supported by ample international reserves and manageable levels of external debts. Global economy activity is projected to improve in 2017, underpinned by an expansion in domestic demand in the advanced and emerging market economies, boosted in part by expansionary fiscal policies in selected major economies. These pro-growth policies would spur global demand and provide impetus to global trade. The outlook would also be supported by a recovery in commodity prices amid the move to reduce oversupply conditions. Nonetheless, the global economy will continue to be subjected to several downside risks. These include a potential retreat from globalisation and free trade in the advanced economies, and uncertainty over the UK and EU negotiations and geopolitical developments. Anticipation of monetary policy divergence between the US and the other major economies could also result in over adjustment in the foreign exchange markets amidst destabilising capital flows. With the gradual improvement in global growth, recovery in global commodity prices and the continued growth of domestic demand are expected to collectively support Malaysia's growth performance. The Malaysian economy is projected to register a sustained growth of 4.3% - 4.8% in (Source: Annual Report 2016, Bank Negara Malaysia) 16

17 4.2 Overview and outlook of the manufacturing sector in Malaysia Gross exports accelerated by 21.4% in the first quarter of 2017 (4Q 2016: 2.8%). The growth performance was broad-based, driven by manufactured and commodities exports, both of which recorded double-digit growth. Strong growth in manufactured exports was attributable to higher demand from all major trading partners particularly the United State of America, PR China and regional economies. Demand for electronics and electrical products increased, particularly for semiconductors. In terms of destination, electronics and electrical exports were supported primarily by the higher demand from PR China and the United State of America. Resource-based manufactured exports were also higher in the first quarter of 2017 due mainly to petroleum products, and chemicals and chemical products. Exports of these products were mainly concentrated to PR China and the region. Commodity exports were supported by the improvement in commodity prices and higher export volumes of crude oil, crude palm oil and LNG. Gross imports grew robustly by 27.7% in the first quarter of 2017 (4Q 2016: 5%), underpinned by higher intermediate goods and imports of capital and transport equipment. Of significance, capital imports were driven mainly by high-value items, including a floating structure, oil and gas vessels and several aircrafts. Intermediate imports registered higher growth, in line with strong manufacturing export performance. As import growth outpaced export growth during the quarter, the trade surplus was lower at RM18.9 billion (4Q 2016: RM27.5 billion). (Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter of 2017, Bank Negara Malaysia) The manufacturing sector grew by 4.4% in 2016 (2015: 4.9%), supported by continued expansion in both export- and domestic-oriented industries. The performance of the export-oriented industries was mainly driven by firm growth of the electronics and electrical (E&E) segment, with semiconductors exports growing strongly in response to the recovery in global demand for semiconductors in the second half of Growth was further supported by higher production of petrochemical products to meet sustained regional demand. The domestic-oriented industries were weighed down by the weak output of motor vehicles, but strong demand for food-related products and construction-related materials provided support to growth. (Source: Annual Report 2016, Bank Negara Malaysia) Value-added of the manufacturing sector grew 4.3% during the first six months of 2016 (January June 2015: 4.9%), while output increased 4% mainly supported by export-oriented industries (January July 2015: 4.8%). Higher production of E&E and resource-based products contributed significantly to the export-oriented industries, which grew 4.2% (January June 2015: 5.3%). Meanwhile, growth of the domesticoriented industries was sustained at 3.3% supported by steady construction activity and consumer spending. Average wage per employee continued to increase 4.1% to RM3,076, while the number of employees decreased 0.1% largely due to automation to replace unskilled workers (January July 2015: 4.7%; RM2,897; 0.1%). Capacity utilisation rate remained high at 77.5% during the second quarter of 2016 (Q1 2016: 76.7%), indicating higher output of the sector. For the year, the manufacturing sector is expected to grow 4% (2015: 4.9%). Production of wood and wood products increased further by 7.7% (January July 2015: 7.1%), with sales expanding 8.7% to RM8.8 billion (January July 2015: 2.8%; RM8.1 billion). The subsector was largely supported by higher output of sawmilling and planning of wood, which recorded a significant growth of 18.7% during the period (January July 2015: 13.9%). Meanwhile, the output of wooden and cane furniture rose 10.5% on account of increased demand from major export destinations such as the United States (US), Australia and Japan (January July 2015: 6.5%). 17