ABUNDANCE INTERNATIONAL: New chemical business to give new lease of life?

"Rooster" contributed this article to NextInsight

Interesting developments, mainly a change in its core business, at Abundance International Ltd (formerly known as Craft Print) may pave the way for its return to profitability after losses in at least the past five years (2011-2015).

Its 1H2016 revenue has soared and, though there was a loss, it was only US$247,000 (see table).

	HY2016	FY2015³	FY2014	FY2013
Revenue	US$23.9 m¹	S$13.4 m²	S$13.3 m²	S$14.6 m²
Loss	US$247,000	S$9.2 m	S$3.9 m	S$3.7 m
Notes: (1) Revenue predominantly from the new chemical trading business which commenced in January 2016. (2) Revenue predominantly from printing business. (3) FY2015 covers 15 months from 1 October 2014 to 31 December 2015. Source: Company

Abundance is a Singapore-incorporated company listed on the Catalist of the SGX-ST. It has scaled down and ceased its former core business of commercial printing by 31 Dec 2015.

Currently, under new controlling shareholders, it is principally engaged in the businesses of chemicals manufacturing, trading, storage of equipment, accessories, consumables or peripherals used in the chemical industry.

Key events since 2014:

25 Sept 2014: Mr Shi Jiangang and Mr Sam Kok Yin collectively subscribed for non-transferrable convertible bonds due 2016 with a principal amount of S$14,000,000 convertible into 280,000,000 new ordinary shares of the Company; and an option to require the Company to issue 210,000,000 new shares (the “Option Shares”) at S$0.05 per Option Share.

25 Sept 2014 : Company announced that Mr Shi and Mr Sam were appointed as the Executive Chairman and an Executive Director of the Company, respectively.

10 Dec 2014: Company announced it has issued 60,000,000 shares at S$0.05 per share, following the conversion of S$3,000,000 convertible bonds due 2016 by Mr Sam.

2 June 2015: Company announced the decision to diversify into chemicals manufacturing, trading, storage business and entered into a JV agreement with Mr Jiang Hao in relation to a newly-incorporated JV company, OrientSalt Chemicals (“OSC”).

The Company and Mr Jiang agreed to grant to each other put and call options in relation to an aggregate of 69,176,472 new Shares in the Company;

24 Aug 2015: Company changed its name to “Abundance International Limited (沣裕国际有限公司)”;

30 Dec 2015: It said that its 51%-owned subsidiary, OSC, commenced trading of chemical products in December 2015.

14 Jan 2016: Company announced it had agreed to the sale of machinery and equipment used for the printing business to Pinheiros Corporation for S$1.85 million.

24 March 2016: Company announced that it had issued 220,000,000 ordinary shares at the conversion price of S$0.05 per share to Mr Shi and Mr Sam, following the conversion of S$11,000,000 bonds due 2016. As a result, the number of issued shares of the Company increased from 248,000,000 to 468,000,000.

24 March 2016: Mr Shi announced that as a result of the conversion of S$11,000,000 bonds due 2016, he was required under the Takeover Code to make a mandatory unconditional cash offer.

20 April 2016: Company announced that at the close of the Takeover Offer, the percentage of shares held by the public was approximately 7.86% and was therefore less than the requisite 10% pursuant to Rule 723 of the Listing Manual.

17 June 2016: Company announced that it had entered into a sale and purchase agreement with Mr Jiang Hao to acquire his 49% shareholding in OSC. Upon completion of the Acquisition, OSC will become a wholly-owned subsidiary of the Company; and also the Company proposes to undertake a Rights Issue.

19 July 2016: Company completed a Compliance Placement of 57,150,000 shares to Mr Hong Yuming, Mr Yan Zhaorong, Mr Koh Boon Tong, Mr Goon Eu Jin Terence and Mr Thio Seng Tji collectively at S$0.07 per share to meet the free float requirement. The number of shares increased from 468,000,000 to 525,150,000.

5 August 2016: Company announced that OSC has accepted an uncommitted trade ﬁnance related facility of up to S$14,000,000 from an international bank.

19 August 2016: Company announced that the net proceeds from the Bonds Issue and Placement have been fully utilised for the ﬁnancing of the chemical business of the Group.

30 Dec 2016: Company announced the Completion of the acquisition of 49% interest in OSC, pursuant to which 117,600,000 shares were issued to Mr Jiang.

31 Jan 2017: Company completed a Rights Issue of S$12,855,000 in principal amount of unlisted zero coupon bonds due 2021 with principal amount of S$0.02 and an issue price of $0.016 per bond with 642,750,000 free detachable European Style Warrants (expiring on 30 Jan 2021) with an exercise price of S$0.02 per share, on the basis of 1 bond with 1 free warrant for every one existing share.

The rights were fully subscribed, and the company raised net proceeds of $8,180,000 after offseting directors’ loans of $2,023,000.

Uses of rights proceeds:

a) Repayment of amounts owing by the printing business: 20% to 30%, or $1,636,000 to $2,454,000

b) Working capital for new chemical businesses and future acquisitions: 70% to 80%, or $5,726,000 to $6,544,000

As at 5 Jan 2017: Number of Issued Shares was 642,750,000.

The interests of the Directors and Substantial Shareholders:

	Direct Interest	Deemed Interest	Total Interest	Percentage
Directors
Shi Jiangang	238.4 m	-	238.4 m	37.09%
Sam Kok Yin	95.3 m	10.2 m	105.4 m	16.40%
Substantial Shareholders
Jiang Hao	117.6 m	-	117.6 m	18.30%
Chan & Ong Holdings	-	85.5 m	85.5 m	13.3%
Chan Charlie	2.0 m	94.7 m	96.7 m	15.04%
Ong Kwee Cheng Dora	9.2 m	87.5 m	96.7 m	15.04%

Key Observations

1) Mr Shi and Mr Sam invested in Craft Print in 2014 via a convertible bond with a conversion price of $0.05 per share. Eventually they took board control and sold off the printing business and got into chemical trading.

2) Mdm Ong and Mr Chan no longer run the company and have reduced their exposure to Abundance through a reduced take-up rate of their entitlement in the rights issue.

3) Compliance placees subscribed at S$0.07 per share (which was a 40% premium to the price of $0.05 at that time in July 2016) and have possibly put in a further $0.016 via the recent rights issue.

Hence their total costs add up to $0.086 (versus current price of $0.057). This may reflect their positive view of, and commitment to, the chemical business.

4) The Directors and Substantial Shareholders collectively own 86.8% of the company’s issued shares. If the Compliance Placees' shares (8.8%) were included, the figure rises to 95.6%. Hence, the tradeable free float is estimated to be only 4.4% to 13.2%.

5) The Company provided an optimistic outlook in the half-year results announcement on 8 August 2016 as follows:

“The Group has ceased internal production in respect of the printing business. Any outstanding and new sales orders that have been or may be received in respect of the printing business will be outsourced to other printers to produce on behalf of the Group. This would stem the losses consistently suffered by the printing business over the past several years and stop further erosion of shareholders’ value. With that done, our next aim would be to enhance shareholders’ value by leveraging on our new business segments.

"Our chemical trading business, conducted via Orient-Salt Chemicals Pte Ltd (“OSC Singapore”) and its subsidiaries (the “OSC Group”) achieved revenue of US$23,959,000 for the six months ended 30 June 2016. This is despite the OSC Group having limited working capital as it did not have access to any trade facilities from banks."

On 5 August 2016, the Company further announced that OSC Singapore has accepted an uncommitted trade finance related facility of up to S$14,000,000 made available by an international bank (the “Facility”). Mr Sam commented:

"As compared to HY2016, the revenue of the OSC Group for the remaining 6 months of FY2016 is expected to be higher due to:

- OSC Singapore’s wholly-owned subsidiary in the China commencing operations in August/September 2016;

- The availability of the Facility; and

- The completion of the Placement and Rights Issue, which will significantly improve the Company’s cash flow position and allow it to give financial support to the OSC Group.

Completion of the Acquisition also allows Abundance to take in the entire financial performance of the OSC Group going forward."

Interesting details of Abundance Warrants

Last done price (10 Feb) of Abundance	$0.066
Last done price (10 Feb) of Abundance warrants	$0.028
Exercise Price	$0.02 (European Style, hence exercisable only on maturity in Jan 2021, not EPS dilutive)
Gearing	0.066 / 0.028 = 2.35x
Inclusive of exercise price, discount on warrants price = $0.066 – 0.028 – 0.02 = $0.018 (or 27.2% discount to the mother share)

Given that it is a European Style Warrant, it should trade at a discount. The question is how much?

An acceptable discount would be in region of 10%, and hence a price of $0.039 based on underlying share price of $0.066.

Now the chemical business both the topline and bottomline of Abundance, in view of the additional working capital provided from the rights issue of S$8,180,000 and uncommitted trade ﬁnance related facility of up to S$14,000,000 from an international bank.

If Abundance's share price were to rise:

1) Abundance shares at $0.086 (which is the combined subscription price of Compliance placees $0.086), the warrants could be worth $0.057 (assume a 10% discount to underlying share price),

2) Abundance shares at $0.10, the warrants could be worth $0.07 (assume a 10% discount to underlying share price),

This compares favourably with the current price of Abundance warrants of $0.028.

My view is that the warrants allow a cheaper entry into the chemical manufacturing play of Abundance.

Comments

#1 Hu Say 2017-02-20 18:33

Yes. This company may be an s-chip with ops in China and controlling shareholder being PRC national. Note that the listed entity is Singapore incorporated and thus subject to local company act regulations.

The PRC have put in their own monies ahead of the rights issue and also underwritten a portion of rights issue. And they paid off the previous controlling shareholders' loans via their personal cash injected into the company

It's worth emphasising that by having unlisted bonds, they are keeping faith with the company for next 4 years with zero coupon.

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ABUNDANCE INTERNATIONAL: New chemical business to give new lease of life?

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