By Khairie Hisyam
After two years of losses, printed circuit board manufacturer PNE PCB seems on track to post a profitable year. Whether it would be sustainable profitability remains in question, however, amid internal uncertainties in the current turbulence.
Last Friday, PNE PCB Berhad called off its proposed private placement exercise to raise cash. While this may be good news for shareholders, who would be spared shareholding dilution, the cancellation raises concerns amid much uncertainty around the company.
The proposed private placement, which would have seen an issuance of up to 10% of its existing shares, sought to raise up to RM6.5 million for working capital before expenses. In its regulatory filing on Friday, the company cited its assessment of current market conditions as a reason for the cancellation.
However the company did not say whether the need for cash infusion has also disappeared since the initial announcement was made on March 18 this year.
To recap, PNE PCB said in March that it intends to use up to RM3.3 million to buy raw materials and another RM3 million for utilities and expenses relating to operations and administration. The company’s business activities are mainly in Malaysia, Singapore and China.
The wording of its regulatory filing last Friday implies the company still needs the funds, especially since its cash reserves has dwindled from over RM20 million as at Sept 30, 2014 to RM8.6 million as at August 28 this year – where will the funds come from now?
Bank borrowings, which the company had wanted to avoid in the first place, seem likely now. Latest financial filings as at Sept 25 indicate the company’s liabilities does not have any borrowings at present. Overall, the matter may be resolved without much problems, however the company itself is facing much uncertainty.
The go-no-go over the private placement rounds off a worrying few years for the company’s shareholders. The past two financial years ended September 30, 2013 and 2014 (FY13 and FY14) respectively had seen mounting losses, though problems seem to predate these years as margins had been razor thin before too.
While the ninth-month period to-date in FY15 had been profitable, raising hope of the first profitable financial year in three, sharp-eyed shareholders would notice that the apparent turnaround over the past three quarters is in part credited towards cost-cutting measures.
Another contributing factor is the company’s review of its depreciation policy for plant, equipment, furniture and fittings in FY14, which “which resulted in changes in the expected usage of certain items” from 10 years to 15 years. This was reflected in a reduction of between 36% and 46% in quarterly depreciation over the past three quarters in FY15.
It raises concerns. Depreciation policy reviews aside, cost-cutting can only improve things so much before it becomes counter-productive to forward growth. Turning around the business into sustainable profitability requires more.
At a time when PNE PCB, which listed on Bursa Malaysia in 1997, clearly needs a steady hand to sail through the current turbulence and find a growth driver, shareholders have been grappling with the exit of founder Tan Keng Hong and his brothers, potentially leaving the company in as-yet untried hands.
Tan Keng Hong, who founded the business in 1976 and has been group chairman since at least 1999 up to August 2014, when he was re-designated executive director, resigned on Dec 18, 2014 to “pursue other interests”. His brother Tan Kong Guan, who has also been group managing director for the same timeframe, also left.
Meantime the Tan family-controlled Singapore Stock Exchange (SGX)-listed company, PNE Industries Ltd, divested 19 million PNE PCB shares in a five-day period up to July 1, 2014, reducing its stake of 42.78% to 13.9%. Prior to that the company had long held well over 30%.
Furthermore, in July 2014 the Tan brothers intended to divest a 29% stake in PNE Industries to Hummer Investments, leaving themselves with just over 20%, though this was called off a day after they left the board of PNE PCB as certain conditions precedents of the deal weren’t met, according to SGX filings.
As for PNE Industries’ stake in PNE PCB, the divestment was driven by PNE PCB’s slowdown in performance amid global uncertainty as well as a belief by PNE Industries that the share price does not reflect its value.
The disposal mandate expired in January this year and PNE Industries said to SGX that going forward it “will monitor the returns earned from the remaining PCB Shares held, and manage this investment accordingly in future to maximize returns for shareholders”, implying it will be more passive vis-a-vis PNE PCB management.
The indications are that the Tan family are taking a step back, even in the Singaporean PNE Industries. This showed by the now-cancelled choice private placement, which would have seen both the Tan family’s shareholding as well as then-substantial shareholder Credit Suisse diluted.
(Credit Suisse has ceased to be a substantial shareholder at the time of writing, leaving PNE Industries with a 13.9% stake as the only substantial shareholder.)
In other words, the family is not pumping in money for PNE PCB. Otherwise the company would have mooted a rights issuance to all shareholders as opposed to a private placement.
Filings to the stock exchange indicate that only two executive board members remain: Cheng Kim Liang and Ho Jien Shung. Both joined the board in July 2014 and August 2014 respectively.
According to the company’s FY14 annual report, the group managing director is also the chief operating decision maker. It is unclear who calls the shots now vis-a-vis operations given the relatively brief period Cheng and Ho had been with the company.
Both are relatively young — Cheng turns 35 this year while Ho turns 31. The latter comes from a background of marketing and business development while Cheng headed sales and marketing in a Japanese plastics manufacturer in addition to holding a chief operation officer post at a multinational company prior to joining the company.
Is the duo now taking over the reins at PNE PCB after so many years being run by the Tan family? Is the board currently looking for new major shareholders to come in?
To be sure, the duo would be facing an uphill task ahead to steer the ship back into steady waters. China in particular is grappling with a new normal in its economic growth and trade demand, while Malaysia and Singapore are feeling the shocks of global economic turbulence – electrical exporters such as PNE PCB are not spared the pain.
Meantime however it would not hurt if the company’s hazy situation is clarified well before the next annual general meeting – likely in February – for the benefit of concerned shareholders.
GRRRRR!!!
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