ASIA POLY HOLDINGS BERHAD (Company No. No A) (Incorporated in in Malaysia under under the the Companies Act Act 2016) 2016)

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the course of action to be taken, you should consult your stockbroker, bank manager, solicitor, accountant or other professional advisers immediately. THIS THIS CIRCULAR IS IS IMPORTANT AND AND REQUIRES YOUR IMMEDIATE ATTENTION. Bursa Malaysia Securities Berhad ( Bursa Securities ) has not perused the contents of this Circular in relation to the Proposed If Amendments you If you are are in in any (as any doubt defined doubt as herein) as to to the the prior course to its of of action issuance action to pursuant to be be taken, taken, to you Guidance you should Note consult 22 of your the your ACE stockbroker, Market Listing bank bank Requirements manager, solicitor, of Bursa accountant Securities. or Bursa or other other Securities professional takes advisers no responsibility immediately. for the contents of this Circular, makes no representation as to its accuracy or Bursa completeness Bursa Malaysia and Securities expressly Berhad disclaims ( Bursa any Securities ) liability whatsoever has has not not for perused any loss the the howsoever contents of arising of this this Circular from or in in in reliance relation upon to to the the the Proposed whole or Amendments any part of the (as (as contents defined herein) of this Circular. prior prior to its to its issuance pursuant to Guidance to Note Note of of the the ACE ACE Market Listing Requirements of of Bursa Bursa Securities. This Circular Bursa Bursa has Securities been reviewed takes takes no by no TA responsibility Securities Holdings for for the the contents Berhad, of who of this this Circular, the Adviser makes makes to Asia no no Poly representation Holdings Berhad as as to to its ( Asia its accuracy Poly or or completeness Company ) and for and expressly the Proposed disclaims Rights any Issue any liability of ICPS whatsoever with Warrants for for any any (as loss defined loss howsoever herein), arising Proposed from from Acquisition or or in in reliance (as upon defined upon the the whole herein) whole or and or any Proposed any part part of of the Diversification the contents of of this (as this Circular. defined herein). This This Circular has has been been reviewed by by TA TA Securities Holdings Berhad, who who is the is the Adviser to Asia to Asia Poly Poly Holdings Berhad ( Asia Poly Poly or or Company ) for for the the Proposed Rights Rights Issue Issue of of ICPS ICPS with with Warrants (as (as defined herein), Proposed Acquisition (as (as defined herein) and and Proposed Diversification (as (as defined herein). ASIA POLY HOLDINGS BERHAD (Company No. No A) (Incorporated in in Malaysia under under the the Companies Act Act 2016) 2016) CIRCULAR TO TO SHAREHOLDERS IN IN RELATION TO TO THE THE PART A A (I) (I) (II) (II) (III) (III) (IV) (IV) (V) (V) PROPOSED RIGHTS ISSUE OF OF ICPS WITH WARRANTS; PROPOSED ACQUISITION; PROPOSED VARIATION; PROPOSED DIVERSIFICATION; AND AND PROPOSED AMENDMENTS PART B B INDEPENDENT ADVICE LETTER FROM INTER-PACIFIC SECURITIES SDN SDN BHD BHD TO TO THE THE NON- INTERESTED SHAREHOLDERS OF OF ASIA POLY IN IN RELATION TO TO THE THE PROPOSED ACQUISITION AND AND NOTICE OF OF EXTRAORDINARY GENERAL MEETING Adviser for Part A (I), (II) and (IV) Independent Adviser for for Part B B (14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) The Notice of Extraordinary General Meeting ( EGM ) of our Company, to be held at Conference Room of Asia Poly Industrial Sdn Bhd, Lot 758, Jalan Haji Sirat, Mukim Kapar, Klang, Selangor Darul Ehsan on Friday, 25 August 2017 at p.m. or any The adjournment Notice of Extraordinary thereof, together General with Meeting the Proxy ( EGM ) Form are of enclosed our Company, in this to Circular. be held at Conference Room of Asia Poly Industrial Sdn Bhd, Lot 758, Jalan Haji Sirat, Mukim Kapar, Klang, Selangor Darul Ehsan on Friday, 25 August 2017 at p.m. A shareholder or any adjournment entitled thereof, to attend together and vote with at the the EGM Proxy is Form entitled are to enclosed appoint in up this to Circular. 2 proxies to attend and vote instead of him/her. The Proxy Form must be lodged at the Registered Office of our Company at 308, Block A (3 rd Floor), Kelana Business Centre, 97, Jalan SS A 7/2, shareholder Kelana Jaya, entitled to attend Petaling and Jaya, vote Selangor at the EGM Darul is entitled Ehsan not to appoint later than up 48 to 2 hours proxies before to attend the time and set vote for instead the EGM of him/her. or at any The adjournment Proxy Form thereof. must be The lodged lodgement at the of Registered the Proxy Office Form will of our not Company preclude at you 308, from Block attending A (3 rd and Floor), voting Kelana in person Business at the Centre, EGM should 97, Jalan you SS subsequently 7/2, Kelana wish Jaya, to do so. Petaling Jaya, Selangor Darul Ehsan not later than 48 hours before the time set for the EGM or at any adjournment thereof. The lodgement of the Proxy Form will not preclude you from attending and voting in person at the EGM should Last you day, subsequently date and time wish for to lodging do so. the Proxy Form Day, date and time of the EGM Last day, date and time for lodging the Proxy Form : : : Wednesday, 23 August 2017 at p.m. Friday, 25 August 2017 at p.m. Wednesday, 23 August 2017 at p.m. Day, date and time of the EGM This This Circular is is dated dated : July Friday, July August 2017 at p.m. This Circular is dated 27 July 2017

2 CIRCULAR TO SHAREHOLDERS IN RELATION TO THE: (I) PROPOSED RENOUNCEABLE RIGHTS ISSUE OF UP TO 390,023,853 NEW IRREDEEMABLE CONVERTIBLE PREFERENCE SHARES IN ASIA POLY ( ICPS ) ON THE BASIS OF 1 ICPS FOR EVERY 1 EXISTING ORDINARY SHARE IN ASIA POLY ( ASIA POLY SHARE OR SHARE ) HELD AT AN ENTITLEMENT DATE TO BE DETERMINED LATER, TOGETHER WITH UP TO 97,505,963 FREE DETACHABLE WARRANTS ( WARRANTS ) ON THE BASIS OF 1 WARRANT FOR EVERY 4 ICPS SUBSCRIBED FOR ( PROPOSED RIGHTS ISSUE OF ICPS WITH WARRANTS ); (II) (III) (IV) (V) PROPOSED ACQUISITION OF 500,000 ORDINARY SHARES IN HIGH RESERVE LAND SDN BHD ( HRLSB ), REPRESENTING THE ENTIRE EQUITY INTEREST IN HRLSB FOR A PURCHASE CONSIDERATION OF RM14,800,000 ( PURCHASE CONSIDERATION ) TO BE SATISFIED VIA A COMBINATION OF RM8,000,000 IN CASH AND THE ISSUANCE OF 42,027,194 NEW ASIA POLY SHARES AT AN ISSUE PRICE OF RM EACH ( PROPOSED ACQUISITION ); PROPOSED VARIATION OF THE UTILISATION OF PROCEEDS RAISED FROM THE TWO- CALL RIGHTS ISSUE OF SHARES WITH WARRANTS OF ASIA POLY WHICH WAS COMPLETED ON 21 DECEMBER 2015 ( PROPOSED VARIATION ); PROPOSED DIVERSIFICATION OF THE EXISTING BUSINESS OF ASIA POLY AND ITS SUBSIDIARIES TO INCLUDE PROPERTY DEVELOPMENT ( PROPOSED DIVERSIFICATION ); AND PROPOSED AMENDMENTS TO THE CONSTITUTION (MEMORANDUM AND ARTICLES OF ASSOCIATION) OF ASIA POLY ( PROPOSED AMENDMENTS )

3 DEFINITIONS Unless otherwise indicated, the following words and abbreviations shall have the following meaning in this Circular and the accompanying appendices: 5D-VWAP : 5-day volume weighted average market price ACE Market : ACE Market of Bursa Securities Act : Companies Act 2016 Adjustment Warrants : Up to 8,237,661 additional Warrants 2015/2020 to be issued pursuant to the Proposed Rights Issue of ICPS with Warrants Advances by DYBL : The total advances of RM6,019, and RM7,017, made by DYBL to HRLSB as at the date of the SSA and the LPD, respectively Ambank : Ambank (M) Berhad Announcements : Announcements in relation to the Proposals dated 25 January 2017 and 21 February 2017 Announcement LPD : 24 January 2017, being the latest practicable date prior to the Announcements Asia Poly or Company : Asia Poly Holdings Berhad Asia Poly Group or Group : Asia Poly and our subsidiaries Asia Poly Shares or Shares : Ordinary shares in Asia Poly Board : Board of Directors of our Company Bursa Securities : Bursa Malaysia Securities Berhad CAGR : Compound annual growth rate Cash Consideration : Cash payment of RM8,000,000 being part payment for the Purchase Consideration Circular : This circular to our shareholders dated 27 July 2017 Code : Malaysian Code on Take-overs and Mergers 2016 Consideration Shares : 42,027,194 new Asia Poly Shares to be issued at an issue price of RM each to the Vendors to partly satisfy (i.e., RM6,800,000) the Purchase Consideration for the Proposed Acquisition Conversion Ratio and Conversion Price : Conversion ratio and conversion price of the ICPS which have been fixed at either 2 ICPS to be converted into 1 Asia Poly Share or a combination of 1 ICPS and RM0.05 in cash for 1 Asia Poly Share Deed Poll : The document constituting the Warrants to be executed by our Company Director : A natural person who holds a directorship in our Company, whether in an executive or non-executive capacity, and shall have the meaning given in Section 2 of the Act and Section 2(1) of the Capital Markets and Services Act 2007 DYBL or Undertaking Shareholder : Dato Yeo Boon Leong, a major shareholder and Executive Chairman of our Company as well as a director and the controlling shareholder of HRLSB i

4 DEFINITIONS (CONT D) EGM : Extraordinary general meeting Entitled Shareholders : The shareholders of our Company whose names appear in our Company s Record of Depositors on the Entitlement Date Entitlement Date : The date (to be determined by our Board and announced later by our Company) as at the close of business on which the names of our shareholders must appear in the Record of Depositors in order to be entitled to the Proposed Rights Issue of ICPS with Warrants EPS : Earnings per Share Existing business : Our group s principal business of investment holding and the manufacture and sale of cast acrylic products FPE : Financial period ended/ending, as the case may be FYE : Financial year ended/ending, as the case may be GDC : Gross development cost GDV : Gross development value HRLSB : High Reserve Land Sdn Bhd HRLSB Shares : Ordinary shares in HRLSB IAL : Independent Advice Letter ICPS : Up to 390,023,853 new irredeemable convertible preference shares in Asia Poly to be issued pursuant to the Proposed Rights Issue of ICPS with Warrants IMR Report : Independent market research report on the cast acrylic sheet industry in Malaysia dated 17 July 2017 prepared by Infobusiness Infobusiness : Infobusiness Research & Consulting Sdn Bhd, the independent market researcher Interested Person : DYBL, an interested Director and interested major shareholder of our Company Inter-Pacific Securities or Independent Adviser : Inter-Pacific Securities Sdn Bhd Land or Subject Property : A parcel of commercial land with approved Planning Permission located at Mukim of Semenyih, District of Ulu Langat, Selangor Darul Ehsan LAT : Loss after tax LBT : Loss before tax Listing Requirements : ACE Market Listing Requirements of Bursa Securities LPD : 30 June 2017, being the latest practicable date prior to the printing of this Circular M&A : Memorandum and Articles of Association ii

5 DEFINITIONS (CONT D) Master Layout Plan : Master Layout Plan dated 25 October 2016 (Reference No.: MPKJ.JPP/BPB/ (PD)) Maximum Scenario : Assuming all shareholders will subscribe for their entitlements in full. The ICPS are converted at 1 ICPS and cash of RM0.05 for 1 Asia Poly Share MFRS : Malaysian Financial Reporting Standards Minimum Scenario or Minimum Subscription Level : Assuming only the Undertaking Shareholder subscribes to his entitlement pursuant to the Undertaking and subscription by the underwriters pursuant to the underwriting arrangements of the ICPS. The ICPS are converted at 2 ICPS for 1 Asia Poly Share NA : Net assets Planning Permission : Planning Permission letter dated 1 February 2017 (Reference No.: (32) dlm. MPKj.JPP/BPB/KM3/ ) Private Placement : 30,319,000 Asia Poly Shares placed out at an issue price of RM0.16 per Asia Poly Share pursuant to a private placement which was completed on 8 March 2017 Proposals : Proposed Rights Issue of ICPS with Warrants, Proposed Acquisition, Proposed Variation, Proposed Diversification and Proposed Amendments, collectively Proposed Acquisition : Proposed acquisition of 500,000 HRLSB Shares, representing the entire equity interest in HRLSB for the Purchase Consideration, to be satisfied via a combination of the Cash Consideration and the issuance of the Consideration Shares at an issue price of RM each Proposed Amendments : Proposed amendments to the Constitution (M&A) of our Company Proposed Development : Proposed development of the Land which was approved as per the approved Master Layout Plan and approved Planning Permission Proposed Diversification : Proposed diversification of the existing business of our Group to include property development Proposed Rights Issue of ICPS with Warrants : Proposed renounceable rights issue of up to 390,023,853 new ICPS on the basis of 1 ICPS for every 1 existing Asia Poly Share held at the Entitlement Date, together with up to 97,505,963 Warrants on the basis of 1 Warrant for every 4 ICPS subscribed for Proposed Variation : Proposed variation of the utilisation of proceeds raised from the Two- Call Rights Issue of Shares with Warrants Purchase Consideration : Purchase consideration of RM14,800,000 pursuant to the Proposed Acquisition R&D : Research and development Rights Circular : Circular to our shareholders dated 6 October 2015 in relation to, among others, the Two-Call Rights Issue of Shares with Warrants Rights Proceeds : Proceeds raised of approximately RM8.79 million from the Two-Call Rights Issue of Shares with Warrants iii

6 DEFINITIONS (CONT D) RM and sen : Ringgit Malaysia and sen, respectively Rules : Rules on Take-overs, Mergers and Compulsory Acquisitions Sale Shares : 500,000 HRLSB Shares, comprising the entire equity interest in HRLSB as at the Completion Date, which are to be sold by the Vendors to Asia Poly on the terms and subject to the conditions of the SSA SC : Securities Commission Malaysia SIS : Share issuance scheme sq. m. : Square metre SSA : Share sale agreement for the Proposed Acquisition dated 25 January 2017 and supplemented by the Supplemental SSA as well as letter of extension dated 4 July 2017, collectively Supplemental SSA : Supplemental share sale agreement for the Proposed Acquisition dated 21 February 2017 TA Securities : TA Securities Holdings Berhad TEAP : Theoretical ex-all price TERP : Theoretical ex-rights price Two-Call Rights Issue of Shares with Warrants : Two-call rights issue of 175,829,920 Asia Poly Shares together with 58,609,973 Warrants 2015/2020 which was completed on 21 December 2015 Undertaking : Unconditional and irrevocable undertaking from the Undertaking Shareholder that he will subscribe for his entitlement of 48,649,800 ICPS together with 12,162,450 Warrants Underwriting : Underwriting arrangements for 51,350,200 ICPS together with 12,837,550 Warrants so that the Minimum Subscription Level will be achieved USD : United States Dollar Valuation : Market value of the Land of RM17,000,000 as at 3 February 2017 (being the material date of valuation) Valuation Report : Valuation report of the Land dated 2 June 2017 Valuer : Weise International Property Consultants Sdn Bhd Vendors : DYBL, YBH and YBT, collectively Warrants : Up to 97,505,963 free detachable warrants to be issued pursuant to the Proposed Rights Issue of ICPS with Warrants Warrants 2015/2020 : 56,463,973 outstanding warrants 2015/2020 in Asia Poly that have yet to be exercised as at the LPD YBH : Yeo Boon Ho YBT : Yeo Boon Thai iv

7 DEFINITIONS (CONT D) All references to our Company in this Circular are to Asia Poly, references to our Group are to our Company and our subsidiaries. All references to we, us, our and ourselves are to our Company, or where the context requires, our Group. All references to you in this Circular are references to the shareholders of our Company. Words incorporating the singular shall, where applicable, include the plural and vice versa. Words incorporating the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. Any reference to persons shall include a corporation, unless otherwise specified. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any reference to a time of day in this Circular shall be a reference to Malaysian time, unless otherwise specified. [The rest of this page has been intentionally left blank] v

8 TECHNICAL GLOSSARY To facilitate better understanding of the business of our Company, the following glossary contains the definition, explanation and/or description of certain terms used in this Circular in relation to the cast acrylic industry. The terms and their meanings may not correspond to standard industry meanings or usage of these terms. Except where the context otherwise requires, the following technical terms shall apply throughout this Circular and the accompanying appendices: abrasion : Refers to frictional rubbing DMMA : Refers to the breakdown and depolymerisation of scrap/strips from polymer units to monomer units ex-factory sales : Refers to sales registered by the manufacturers, and not the distributors and/or fabricators micron : A millionth of a metre MMA : Refers to methyl methacrylate, a type of monomer monomers : Derived from either naphtha or natural gas, they are the basic building blocks of polymers nanometre : A thousand millionth of a metre nanoparticle(s) : Refers to a microscopic particle of matter between 1 nanometre and 100 nanometres in size naphtha : It is a type of hydrocarbon derived from the refining of crude oil PMMA : Refers to polymethyl methacrylate, a type of polymer. It is also known as acrylics polymers : They are formed by the union or polymerisation of monomers. Also known as synthetic resins or plastic resin polymerisation : Chemical reaction that links monomers to form polymers sol-gels : Solid nanoparticles which are dispersed in a liquid medium to form a network extending throughout the liquid medium substrate : It is the underlying material to which another substance is applied and to which that second substance adheres to [The rest of this page has been intentionally left blank] vi

9 TABLE OF CONTENTS PART A PAGE LETTER TO OUR SHAREHOLDERS CONTAINING: 1. INTRODUCTION DETAILS OF THE PROPOSALS UTILISATION OF PROCEEDS RATIONALE FOR THE PROPOSALS INDUSTRY OUTLOOK AND FUTURE PROSPECTS OF OUR GROUP RISK FACTORS EFFECTS OF THE PROPOSALS HISTORICAL SHARE PRICES APPROVALS REQUIRED CORPORATE EXERCISES ANNOUNCED BUT PENDING COMPLETION INTER-CONDITIONALITY OF THE PROPOSALS INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM TRANSACTION WITH THE SAME RELATED PARTY INDEPENDENT ADVISER DIRECTORS STATEMENT AND RECOMMENDATION AUDIT COMMITTEE S STATEMENT ESTIMATED TIME FRAME FOR COMPLETION EGM FURTHER INFORMATION PART B INDEPENDENT ADVICE LETTER FROM INTER-PACIFIC SECURITIES TO OUR NON- INTERESTED SHAREHOLDERS IN RELATION TO THE PROPOSED ACQUISITION 59 APPENDICES I PRO FORMA CONSOLIDATED STATEMENTS OF FINANCIAL POSITION OF ASIA POLY AS AT 31 DECEMBER 2016 TOGETHER WITH THE REPORTING ACCOUNTANTS LETTER THEREON 92 II INFORMATION ON HRLSB 115 III AUDITED FINANCIAL STATEMENTS OF HRLSB FOR THE FYE 31 DECEMBER IV VALUATION CERTIFICATE BY VALUER 149 V FULL DETAILS OF THE PROPOSED AMENDMENTS 157 VI SALIENT TERMS, RIGHTS AND PRIVILEGES OF THE ICPS 158 VII FURTHER INFORMATION 163 NOTICE OF EGM PROXY FORM ENCLOSED ENCLOSED vii

10 PART A LETTER TO OUR SHAREHOLDERS IN RELATION TO THE PROPOSALS

11 ASIA POLY HOLDINGS BERHAD (Company No A) (Incorporated in Malaysia under the Companies Act 2016) Registered Office: 308, Block A (3 rd Floor), Kelana Business Centre, 97, Jalan SS 7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan 27 July 2017 Board of Directors Dato Yeo Boon Leong (Executive Chairman) Tan Ban Tatt (Independent Non-Executive Director) Thoo Soon Huat (Independent Non-Executive Director) Lim Teck Seng (Non-Independent Non-Executive Director) To: Our shareholders Dear Sir/Madam, (I) PROPOSED RIGHTS ISSUE OF ICPS WITH WARRANTS; (II) PROPOSED ACQUISITION; (III) PROPOSED VARIATION; (IV) PROPOSED DIVERSIFICATION; AND (V) PROPOSED AMENDMENTS 1. INTRODUCTION On 25 January 2017, TA Securities announced on behalf of our Board that our Company proposes to undertake the following proposals: (i) (ii) (iii) (iv) (v) proposed renounceable rights issue of up to 395,675,253 new ICPS on the basis of 1 ICPS for every 1 existing Asia Poly Share held, together with up to 98,918,813 Warrants on the basis of 1 Warrant for every 4 ICPS subscribed for; proposed acquisition of 500,000 HRLSB Shares, representing the entire equity interest in HRLSB for a purchase consideration of RM16,000,000 to be satisfied via a combination of RM8,000,000 in cash and the issuance of 49,443,758 new Asia Poly Shares at an issue price of RM each; Proposed Variation; Proposed Diversification; proposed increase in the authorised share capital of our Company from RM50,000,000 comprising 500,000,000 Asia Poly Shares to RM125,000,000 comprising 1,000,000,000 Asia Poly Shares and 500,000,000 ICPS ( Proposed Increase in Authorised Share Capital ); and 1

12 (vi) proposed amendments to the M&A of our Company to facilitate the issuance of the ICPS pursuant to the Proposed Rights Issue of ICPS with Warrants and the Proposed Increase in Authorised Share Capital. On 21 February 2017, TA Securities announced on behalf of our Board the following: (i) (ii) Our Company and the Vendors had on 21 February 2017 entered into the Supplemental SSA to vary certain terms and conditions of the share sale agreement for the Proposed Acquisition dated 25 January 2017 in view of the recognition of provision for deferred tax liability at 24% on the revaluation surplus arising from the revaluation of the Land in HRLSB subsequent to the said share sale agreement. Please refer to Section 2.2 of this Circular for further details on the variation of terms and conditions of the share sale agreement for the Proposed Acquisition dated 25 January 2017; and In view of the Act which was gazetted on 15 September 2016 and came into effect on 31 January 2017 (with the exception of Section 241 and Division 8, Part III), the Proposed Increase in Authorised Share Capital is no longer necessary pursuant to the Act. As announced on 25 January 2017, the proposed rights issue of ICPS with Warrants entailed the issuance of up to 395,675,253 ICPS together with up to 98,918,813 Warrants under a maximum scenario which had assumed that the private placement was implemented after the full exercise of Warrants 2015/2020. On 8 March 2017, our Company completed the Private Placement prior to the full exercise of Warrants 2015/2020. As such, the number of ICPS and Warrants to be issued pursuant to the Proposed Rights Issue of Shares with Warrants have been revised downwards to 390,023,853 ICPS and 97,505,963 Warrants. Bursa Securities had vide its letter dated 6 July 2017 approved the following: (a) (b) (c) admission to the Official List and the listing of and quotation for up to 390,023,853 ICPS, up to 97,505,963 Warrants and up to 8,244,956* Adjustment Warrants to be issued pursuant to the Proposed Rights Issue of ICPS with Warrants; listing of and quotation for up to 390,023,853 new Asia Poly Shares, up to 97,505,963 new Asia Poly Shares and up to 8,244,956* new Asia Poly Shares to be issued pursuant to the conversion of the ICPS, exercise of the Warrants and Adjustment Warrants, respectively; and listing of and quotation for 42,027,194 Consideration Shares to be issued pursuant to the Proposed Acquisition, Note: * The number of Adjustment Warrants to be issued has decreased to up to 8,237,661 due to the exercise of 50,000 Warrants 2015/2020 as announced on 25 May on the ACE Market, subject to the conditions as stated in Section 9 of Part A of this Circular. THE PURPOSE OF THIS CIRCULAR IS TO PROVIDE YOU WITH THE RELEVANT INFORMATION ON THE PROPOSALS, TO SET OUT OUR BOARD S RECOMMENDATION AND TO SEEK YOUR APPROVAL FOR THE RESOLUTIONS PERTAINING TO THE PROPOSALS TO BE TABLED AT OUR FORTHCOMING EGM. THE NOTICE OF EGM TOGETHER WITH THE PROXY FORM ARE ENCLOSED IN THIS CIRCULAR. YOU ARE ADVISED TO READ AND CONSIDER THE CONTENTS OF THIS CIRCULAR TOGETHER WITH THE APPENDICES CONTAINED HEREIN CAREFULLY BEFORE VOTING ON THE RESOLUTIONS PERTAINING TO THE PROPOSALS TO BE TABLED AT OUR FORTHCOMING EGM. 2

13 2. DETAILS OF THE PROPOSALS 2.1 Proposed Rights Issue of ICPS with Warrants Our Company is proposing to issue up to 390,023,853 ICPS on the basis of 1 ICPS for every 1 existing Asia Poly Share held, together with up to 97,505,963 Warrants on the basis of 1 Warrant for every 4 ICPS subscribed for by the Entitled Shareholders. For illustrative purposes only, the maximum number of 390,023,853 ICPS and 97,505,963 Warrants were arrived at, after taking into consideration of the following: (i) (ii) the existing issued share capital of our Company as at the LPD of RM35,175,128 comprising 333,559,880 Asia Poly Shares; and assuming 56,463,973 outstanding Warrants 2015/2020 are exercised into 56,463,973 new Asia Poly Shares on or prior to the Entitlement Date. The actual number of ICPS to be offered will only be determined on the Entitlement Date. The entitlements for the ICPS with Warrants are renounceable in full or in part. However, the ICPS and the Warrants cannot be renounced separately. Should the Entitled Shareholders renounce all of their ICPS entitlements under the Proposed Rights Issue of ICPS with Warrants, they will not be entitled to the Warrants. However, if the Entitled Shareholders accept only part of their ICPS entitlements under the Proposed Rights Issue of ICPS with Warrants, they shall be entitled to the Warrants in proportion of their acceptances of the ICPS entitlements. In determining shareholders entitlements to the Warrants under the Proposed Rights Issue of ICPS with Warrants, fractional entitlements, if any, shall be disregarded, and dealt with by our Board in such manner at its absolute discretion as it may deem fit or expedient and in the best interest of our Company. The ICPS with Warrants which are not taken up or validly taken up shall be made available for excess applications by the Entitled Shareholders and/or their renouncee(s) (if applicable). It is the intention of our Board to allocate the excess ICPS in a fair and equitable manner on a basis to be determined by our Board and announced later by our Company. The Warrants will be immediately detached from the ICPS upon issuance and separately traded from the ICPS on the ACE Market of Bursa Securities. The Warrants will be issued in registered form and constituted by the Deed Poll Basis of determining and justification for the issue price of the ICPS and the exercise price of the Warrants (a) ICPS Our Board has fixed the issue price of the ICPS at RM0.05 each after taking into consideration, among others, the following: (i) (ii) (iii) (iv) the TEAP of RM per Asia Poly Share, calculated based on the 5D-VWAP of Asia Poly Shares up to and including the Announcement LPD of RM per Asia Poly Share; the issued share capital of each Asia Poly Share of RM0.10 then; the issued share capital of each ICPS of RM0.05 then, the Conversion Ratio and Conversion Price of the ICPS which have been fixed at either 2 ICPS to be converted into 1 Asia Poly Share or a combination of 1 ICPS and RM0.05 in cash for 1 Asia Poly Share; the rationale for the Proposed Rights Issue of ICPS with Warrants as set out in Section 4 of Part A of this Circular; and 3

14 (v) the funding requirements of our Group, the details of which are set out in Section 3 of Part A of this Circular. The Conversion Price of RM0.10 is at a discount of approximately RM or 26.09% to the TEAP of RM per Asia Poly Share, calculated based on the 5D-VWAP of Asia Poly Shares up to and including the Announcement LPD of RM per Asia Poly Share. The Conversion Price is fixed at RM0.10 and was arrived at holistically, after taking into consideration, among others, the issue price of the ICPS and the exercise price of the Warrants, and is at a discount (as set out above) to encourage the ICPS holders to convert their ICPS and further increase their equity participation in our Company at a predetermined price. (b) Warrants The Warrants will be issued at no cost to the Entitled Shareholders who successfully subscribed for the ICPS. Our Board has fixed the exercise price of the Warrants at RM0.10 each after taking into consideration, among others, the following: (i) (ii) the TERP of RM per Asia Poly Share, calculated based on the 5D-VWAP of Asia Poly Shares up to and including the Announcement LPD of RM per Asia Poly Share; and the issued share capital of each Asia Poly Share of RM0.10 then. The exercise price of RM0.10 per Warrant represents a discount of RM or 29.18% to the TERP of RM per Asia Poly Share, calculated based on the 5D-VWAP of Asia Poly Shares up to and including the Announcement LPD of RM per Asia Poly Share. The exercise price of the Warrants of RM0.10 which is at a discount (as set out above) to provide further incentive to the Entitled Shareholders to subscribe for the Proposed Rights Issue of ICPS with Warrants, and to encourage the Warrant holders to exercise their Warrants and increase their equity participation in our Company at a predetermined price Salient terms of the ICPS The salient terms of the ICPS are as follows: Terms Details Issue size : Up to 390,023,853 ICPS. Issue price : RM0.05 per ICPS. Dividend rate : Our Company has full discretion over the declaration of dividends, if any. Dividends declared and payable annually in arrears are non-cumulative and shall be in priority over the ordinary shares of our Company. Tenure : 5 years commencing from and inclusive of the date of issue of the ICPS. 4

15 Maturity date : The day immediately preceding the 5 th anniversary from the date of issue of the ICPS unless the tenure of the ICPS, if permitted by law, is extended by our Company and the ICPS holders. If such day falls on a day which is not a market day, then on the preceding market day. Redemption : Not redeemable for cash. Board lot : For the purpose of trading on Bursa Securities, 1 board lot of ICPS shall comprise 100 ICPS, or such other denomination as determined by Bursa Securities from time to time. Form and denomination : The ICPS will be issued in registered form and will be constituted by our Company s Constitution (M&A). Conversion rights : (a) Each ICPS carries the entitlement to convert into new Asia Poly Shares at the Conversion Ratio through the surrender of the ICPS. (b) (c) No adjustment to the Conversion Price shall be made for any declared and unpaid dividends on the ICPS surrendered for conversion. If the conversion results in a fractional entitlement to ordinary shares of our Company, such fractional entitlement shall be disregarded and no refund or credit, whether in the form of the ICPS, cash or otherwise, shall be given in respect of the disregarded fractional entitlement. Conversion period : (a) The ICPS may be converted at any time within 5 years commencing on and including the date of issue of the ICPS up to and including the maturity date, as determined by the Conversion Ratio and Conversion Price. (b) Any remaining ICPS that are not converted by the maturity date shall be automatically converted into new Asia Poly Shares at the conversion ratio of 2 ICPS to be converted into 1 Asia Poly Share. Conversion Ratio and Conversion Price Ranking of the ICPS and liquidation preference : The Conversion Ratio and Conversion Price have been fixed at either 2 ICPS to be converted into 1 new Asia Poly Share or a combination of 1 ICPS and RM0.05 in cash for 1 new Asia Poly Share. : The ICPS shall rank pari passu amongst themselves and shall rank in priority to any other class of shares in the capital of our Company. In the event of liquidation, dissolution, winding-up, reduction of capital or other repayment of capital: 5

16 (a) (b) The ICPS shall confer on the holders the right to receive in priority to the holders of ordinary shares in Asia Poly, cash repayment in full of the amount of any non-cumulative preferential dividend that has been declared and remaining in arrears. After the payment of any dividends to the holders of ICPS, the remaining assets shall be distributed first to the holders of ICPS in full of the amount which is equal to the issue price for each ICPS, provided that there shall be no further right to participate in any surplus capital or surplus profits of our Company. In the event that our Company has insufficient assets to permit payment of the full issue price to the ICPS holders, the assets of our Company shall be distributed pro rata on an equal priority, to the ICPS holders in proportion to the amount that each ICPS holder would otherwise be entitled to receive. Ranking of new Asia Poly Shares to be issued pursuant to the conversion of the ICPS : All new Asia Poly Shares to be issued pursuant to the conversion of the ICPS shall, upon allotment and issuance, rank pari passu in all respects with the existing Asia Poly Shares except that such new Asia Poly Shares shall not be entitled to any dividends, rights, allotments and/or other distribution, the entitlement date of which is prior to the date of allotment and issuance of the new Asia Poly Shares arising from the conversion of the ICPS. Adjustment to Conversion Price and Conversion Ratio : The Conversion Price and/or Conversion Ratio will be adjusted at the determination of our Company, in all or any of the following cases: (a) (b) (c) (d) (e) an alteration to the number of Asia Poly Shares by reason of consolidation or subdivision; or a bonus issue of fully paid-up ordinary shares by our Company or any other capitalisation issue for accounting purposes; or a capital distribution to shareholders made by our Company whether on a reduction of capital or otherwise, but excluding any cancellation of capital which is loss or unrepresented by assets; or a rights issue of ordinary shares by our Company; or any other circumstances that our Board deems necessary, provided that any adjustment to the Conversion Price will be rounded down to the nearest one sen (RM0.01). No adjustment to the Conversion Price and/or Conversion Ratio will be made unless the computation has been certified by the external auditors of our Company. 6

17 Rights of the ICPS holders : The ICPS holders are not entitled to any voting right or participation in any rights, allotments and/or other distribution in our Company except in the following circumstances: (a) (b) (c) (d) (e) (f) when the dividend or part of the dividend on the ICPS is in arrears for more than 6 months; on a proposal to reduce our Company s share capital; on a proposal for the disposal of the whole of our Company s property, business and undertaking; on a proposal that affects their rights and privileges attached to the ICPS; on a proposal to wind-up our Company; and during the winding-up of our Company. Listing : The ICPS will be listed and traded on the ACE Market of Bursa Securities. Approval has been obtained from Bursa Securities for the admission of the ICPS to the Official List of the ACE Market of Bursa Securities and the listing of and quotation for the ICPS and the new Asia Poly Shares to be issued pursuant to the conversion of the ICPS on the ACE Market of Bursa Securities. Transfer : The ICPS will be transferable only by instrument in writing in the usual or common form or such other form as the Directors of our Company and the relevant authorities may approve. As the ICPS will be listed on and traded on the ACE Market of Bursa Securities, they will be deposited in a central depository system and may be subject to the rules of such system. Modification of rights : Our Company may from time to time with the consent or sanction of all the holders of the ICPS make modifications to the terms of which in the opinion of our Company are not materially prejudicial to the interest of the holders of the ICPS or are to correct a manifest error or to comply with mandatory provisions of the laws of Malaysia and the relevant regulations. Governing law : The laws of Malaysia Salient terms of the Warrants The indicative salient terms of the Warrants are as follows: Terms Details Issue size : Up to 97,505,963 Warrants. Form and denomination : The Warrants which are free will be issued in registered form and will be constituted by the Deed Poll. Exercise price : The exercise price of the Warrants is fixed at RM0.10 each. 7

18 Exercise rights : Each Warrant entitles the registered holder to subscribe for 1 new Asia Poly Share at any time during the exercise period at the exercise price (subject to adjustments in accordance with the provisions of the Deed Poll). Expiry date : The day immediately preceding the 5 th anniversary date of the issuance of the Warrants, provided that if such day falls on a day which is not a market day, then on the preceding market day. Exercise period : The Warrants may be exercised at any time within 5 years commencing on and including the date of issuance of the Warrants until 5.00 p.m. on the expiry date. Warrants not exercised during the exercise period will thereafter lapse and cease to be valid. Mode of exercise : The registered holder of the Warrants is required to lodge an exercise form, as set out in the Deed Poll, with our Company s registrar, duly completed, signed and stamped together with payment of the exercise price for the new Asia Poly Shares subscribed for by banker s draft or cashier s order or money order or postal order in Ringgit Malaysia drawn on a bank or post office operating in Malaysia. Board lot : For the purpose of trading on Bursa Securities, 1 board lot of Warrant shall comprise 100 Warrants carrying the right to subscribe for 100 new Asia Poly Shares at any time during the exercise period, or such other denomination as determined by Bursa Securities from time to time. Adjustments in the exercise price and/or number of the Warrants : Subject to the provisions in the Deed Poll, the exercise price and the number of Warrants held by each Warrant holder shall be adjusted by our Board in consultation with the approved adviser and certified by the auditors of our Company, in the event of alteration to the share capital of our Company. Rights of the Warrants : The Warrant holders are not entitled to any dividends, rights, allotments and/or other distributions that may be declared, made or paid where the entitlement date precedes the date of allotment and issuance of the new Asia Poly Shares upon the exercise of the Warrants. The Warrant holders are not entitled to any voting rights or participation in any form of distribution and/or offer of securities in our Company until and unless such Warrant holders exercise their Warrants into new Asia Poly Shares. Provision for changes in the terms of the Warrants : Any modification to the Deed Poll (including the form and content of the warrant certificate) may be effected only by Deed Poll, executed by our Company and expressed to be supplemental to the Deed Poll, and only if the requirement of Condition 7 of the Deed Poll has been complied with. Any modification shall however be subject to the approval of Bursa Securities (if so required). A memorandum of every such supplemental deed shall be endorsed on the Deed Poll. 8

19 Rights in the event of winding-up, liquidation, compromise and/or arrangement : If a resolution is passed for a members voluntary winding-up of our Company or there is a compromise or arrangement, whether or not for the purpose of or in connection with a scheme for the reconstruction of our Company or the amalgamation of our Company with one or more companies, then: (i) (ii) for the purposes of such winding-up, compromise or arrangement (other than a consolidation, amalgamation or merger in which our Company is the continuing corporation) to which the Warrant holder (or some person designated by them for such purpose by special resolution) shall be a party, the terms of such winding-up, compromise and arrangement shall be binding on all the Warrant holders; and in any other case, every Warrant holder shall be entitled upon and subject to the conditions at any time within 6 weeks after the passing of such resolution for a members voluntary winding-up of our Company or the granting of the court order approving the compromise or arrangement (as the case may be), to exercise their Warrants by submitting the exercise form duly completed authorising the debiting of his Warrants together with payment of the relevant exercise price to elect to be treated as if he had immediately prior to the commencement of such winding-up exercised the exercise rights to the extent specified in the exercise form(s) and had on such date been the holder of the new Shares to which he would have become entitled pursuant to such exercise and the liquidator of our Company shall give effect to such election accordingly. Listing status : The Warrants will be listed and traded on the ACE Market of Bursa Securities. Approval has been obtained from Bursa Securities for the admission of Warrants to the Official List of the ACE Market of Bursa Securities and the listing of and quotation for the Warrants and the new Asia Poly Shares to be issued pursuant to the exercise of the Warrants on the ACE Market of Bursa Securities. Governing law : The laws of Malaysia Ranking of the new Asia Poly Shares to be issued pursuant to the conversion of the ICPS and/or the exercise of the Warrants and/or Adjustment Warrants The new Asia Poly Shares to be issued arising from the conversion of the ICPS and/or exercise of the Warrants and/or Adjustment Warrants shall, upon allotment and issuance, rank pari passu in all respects with the existing Asia Poly Shares, save and except that the new Asia Poly Shares shall not be entitled to any dividends, rights, allotments and/or other distributions, the entitlement date of which is prior to the date of allotment and issuance of the new Asia Poly Shares arising from the conversion of the ICPS and/or exercise of the Warrants and/or Adjustment Warrants. 9

20 2.1.5 Minimum subscription level, major shareholder s undertaking and underwriting arrangement The Proposed Rights Issue of ICPS with Warrants will be implemented on the Minimum Subscription Level. Based on the issue price of RM0.05 per ICPS, our Company will raise minimum gross proceeds of RM5.00 million from the Proposed Rights Issue of ICPS with Warrants. The Minimum Subscription Level was determined by our Board after taking into consideration, inter-alia, the funding requirements of our Group as set out in Section 3 of Part A of this Circular. To meet the Minimum Subscription Level, our Company has procured the Undertaking from the Undertaking Shareholder and that he will not dispose any of his Asia Poly Shares following the announcement dated 25 January 2017 up to the Entitlement Date. In addition to the Undertaking, Asia Poly will also procure the Underwriting so that the Minimum Subscription Level will be achieved. The underwriting commission payable to underwriters and all other costs in relation to the Underwriting will be fully borne by our Company. The Underwriting will be finalised at a later date prior to the implementation of the Proposed Rights Issue of ICPS with Warrants. The terms of the Underwriting have therefore not been finalised and no underwriting agreement has been entered into at this juncture. In view of the Undertaking and Underwriting, the Minimum Subscription Level will be achieved. Details of the Undertaking (at the time the Undertaking was entered into) and Underwriting based on the Minimum Subscription Level are as summarised below: ICPS entitled and undertaken/ to be underwritten As at 23 January 2017 (2) No. of Asia Poly Shares held % No. of ICPS % (1) Undertaking Shareholder DYBL 48,649, ,649, Underwriters ,350, Total 48,649, ,000, Notes: (1) Percentages are calculated based on 100,000,000 ICPS available for subscription under the Minimum Subscription Level. (2) Based on our Company s Record of Depositors as at 23 January 2017 (i.e., at the time the Undertaking was entered into). DYBL holds 29,700 Warrants 2015/2020 based on our Company s Record of Depositors as at 23 January The above assumes that DYBL will not exercise the said Warrants 2015/2020 held. In the event DYBL exercises the 29,700 Warrants 2015/2020 into 29,700 Asia Poly Shares prior to the Entitlement Date, the ICPS undertaken to be subscribed by DYBL will increase by 29,700. [The rest of this page has been intentionally left blank] 10

21 Details of the Undertakings and Underwriting based on the Minimum Subscription Level as at the LPD are as follows: ICPS entitlement (1) ICPS undertaken (2) / underwritten As at the LPD (5) No. of Asia Poly Shares held % No. of ICPS No. of ICPS % (3) Undertaking Shareholder DYBL 48,802,300 (4) ,802,300 48,649, Underwriters ,350, Total 48,802, ,802, ,000, Notes: (1) Entitlement based on DYBL s shareholding in our Record of Depositors as at the LPD. (2) Subscription of ICPS pursuant to the Undertaking. (3) Percentages are calculated based on 100,000,000 ICPS available for subscription under the Minimum Subscription Level. (4) The shareholding of DYBL has increased subsequent to the Undertaking. (5) Based on our Company s Record of Depositors as at the LPD. DYBL holds 29,700 Warrants 2015/2020 based on our Company s Record of Depositors as at the LPD. The above assumes that DYBL will not exercise the said Warrants 2015/2020 held. In the event DYBL exercises the 29,700 Warrants 2015/2020 into 29,700 Asia Poly Shares prior to the Entitlement Date, the ICPS undertaken to be subscribed by DYBL will increase by 29,700. The Undertaking Shareholder has confirmed that he has sufficient financial resources to subscribe for his entitlement of 48,649,800 ICPS together with 12,162,450 Warrants as well as his additional entitlement of 29,700 ICPS with 7,425 Warrants arising from the exercise of his 29,700 Warrants 2015/2020 pursuant to the Undertaking (being his full entitlement at the time the Undertaking was entered into). As the Adviser for the Proposed Rights Issue of ICPS with Warrants, TA Securities has verified that the Undertaking Shareholder has sufficient resources to fulfil his commitment pursuant to the Undertaking. After taking into consideration the Undertaking and Underwriting, the subscription of the ICPS by the Undertaking Shareholder will not give rise to any consequences of mandatory general offer obligations pursuant to the Code and the Rules. The Undertaking Shareholder has undertaken to observe and comply at all times with the provisions of the Code and the Rules. [The rest of this page has been intentionally left blank] 11

22 2.2 Proposed Acquisition On 25 January 2017 and 21 February 2017, our Company entered into the share sale agreement and Supplemental SSA, respectively with the Vendors for the Proposed Acquisition, to be satisfied via the Cash Consideration and Consideration Shares. Subsequently, our Company and the Vendors had via a letter of extension dated 4 July 2017 mutually agreed to the extension of the Stipulated Period (as defined in Section (a) of this Circular) until 24 November Pursuant to the terms of the SSA, our Company shall acquire 500,000 HRLSB Shares from the Vendors, free from all liens, charges and encumbrances and with all rights attaching to them, and all dividends and distributions declared, paid or made in respect thereof as from the Completion Date (as defined in Section of Part A of this Circular) at the Purchase Consideration, upon the terms and conditions of the SSA. With effect from 21 February 2017 (being the date of the Supplemental SSA), the SSA shall be amended and varied in the manner set out below in view of the recognition of provision for deferred tax liability at 24% on the revaluation surplus arising from the revaluation of the Land in HRLSB, subsequent to the share sale agreement dated 25 January 2017: (i) (ii) (iii) (iv) the Purchase Consideration in the share sale agreement dated 25 January 2017 shall be amended to RM14,800,000 only and shall be paid by the Purchaser to the Vendors, in the proportions set out in Section of Part A of this Circular, in accordance with the terms of the SSA; the Consideration Shares in the share sale agreement dated 25 January 2017 shall be amended to 42,027,194 new Asia Poly Shares to be issued at an issue price of RM0.1618, the aggregate value which amounts to RM6,800,000 only, by the Purchaser to part satisfy the Purchase Consideration; the Deposit in the share sale agreement dated 25 January 2017 shall be amended to RM1,480,000 only; and the Balance Purchase Price in the share sale agreement dated 25 January 2017 shall be amended to RM10,120,000 only, being the difference between the Purchase Consideration (of RM14,800,000) and the Deposit (of RM1,480,000) and Redemption Sum* (of RM3,200,000). Please also refer to Sections and of this Circular for the breakdown of the Purchase Consideration. * Being the redemption sum for the redemption of the Land by the Vendors from Ambank as set out in Section (ii) of this Circular. Save for the above, all other terms of the share sale agreement dated 25 January 2017 remain unchanged. Upon completion of the Proposed Acquisition, HRLSB will become a wholly-owned subsidiary of Asia Poly. The Proposed Acquisition is a related party transaction pursuant to Rule of the Listing Requirements in view of the interest the Interested Person as set out in Section 12 of Part A of this Circular. [The rest of this page has been intentionally left blank] 12

23 2.2.1 Background information on HRLSB HRLSB is a private limited company incorporated in Malaysia on 26 November 2012 under the Act. The principal activity of HRLSB is to carry on business in land or property development. HRLSB is the registered owner of the Land located at Mukim of Semenyih, District of Ulu Langat, Selangor Darul Ehsan. Further details of the Land are set out in Section of Part A of this Circular. As at the LPD, the share capital of HRLSB is RM500,000 comprising 500,000 issued HRLSB Shares. As at the LPD, the directors and shareholders of HRLSB and their respective shareholdings in HRLSB are as follows: Name No. of HRLSB Shares % of issued share capital of HRLSB Directors and shareholders DYBL 400, YBH 50, Shareholder YBT 50, Total 500, As at the LPD, HRLSB does not have any subsidiary and/ or associate company Background information on the Vendors (i) DYBL DYBL, age 51, is a director and the controlling shareholder of HRLSB who currently owns 80% equity interest in HRLSB. He is also the Executive Chairman and major shareholder of our Company. (ii) YBH YBH, age 46, is a director and shareholder of HRLSB who currently owns 10% equity interest in HRLSB. He is not a Director of our Company and does not hold any Asia Poly Shares as at the LPD. (iii) YBT YBT, age 35, is a shareholder of HRLSB who currently owns 10% equity interest in HRLSB. He is not a Director of our Company and held 70,000 Asia Poly Shares (i.e., 0.02% equity interest) as at the LPD. The Vendors are brothers. [The rest of this page has been intentionally left blank] 13

24 2.2.3 Details of the Land Postal address and identification : Lot 1894, held under Title No. Geran 47916, Mukim of Semenyih, District of Ulu Langat, State of Selangor Darul Ehsan Title land area : Measuring approximately acres (8, sq. m. or 86, square feet) Land tenure : Freehold interest Audited net book value as at 31 December 2016 : RM8,026,271 Category of land use : Building Express condition : Construction of buildings according to the specifications of the Selangor Town and Country Planning Department Restriction in interests : Nil Encumbrance / Charge : As at the Announcement LPD, the Land was charged to Ambank since 6 June 2013 as collateral for a term loan and overdraft facility. The term loan and overdraft outstanding then were RM2.88 million and RM0.28 million, respectively. Existing use : Vacant Proposed use : Commercial Independent valuation on the Land As at the LPD, the term loan and overdraft outstanding were RM2.07 million and RM0.20 million, respectively. The Land shall be redeemed by the Vendors and shall be free from any liens, charges and encumbrances prior to the completion of the Proposed Acquisition. Please refer to Section of Part A of this Circular for further details. The Valuer has been appointed to conduct an independent valuation on the Land for submission to Bursa Securities. In arriving at the Valuation of RM17,000,000 (being the market value of the Land), the Valuer adopted the residual method as the primary valuation method as the Subject Property is yet to be subdivided and issued with individual titles into specific land uses and the site clearance, earthwork and levelling of this land has yet to be carried out. The Valuer also adopted the comparison method as a check. [The rest of this page has been intentionally left blank] 14

25 2.2.5 Proposed development on the Land The Proposed Development was approved by the Kajang Municipal Council as per the approved Master Layout Plan dated 25 October 2016 and approved Planning Permission dated 1 February The Planning Permission is valid for a period of 1 year. The details on the Proposed Development are as follows: Type of development : Commercial which will comprise: (i) (ii) 12 units of three-storey terrace shop offices (24 x 70 ); 1 unit of four-storey terrace shop office (24 x 70 ); and (iii) 1 unit of three-storey terrace shop office (35 x 70 ); all with basement level for car park bays RM GDV (A) : 39,969, (Source: Valuation Report) Total cost (B) : 25,882, Comprising the following: - Cost of investment in HRLSB 14,800, Net GDC* 11,082, * The net GDC was arrived at as follows: GDC (excluding land cost) 19,875, Less: Developer s profit to be earned (8,793,235.54) Net GDC 11,082, (Source: Valuation Report) Expected gross development profit (A) (B) 14,086, Less: Tax payable on the profit at 24% (3,380,780.56) Expected net development profit 10,705, Expected commencement date of the Proposed Development Expected completion date of the Proposed Development : Our enlarged Group will undertake the Proposed Development after the completion of the Proposed Acquisition (i.e., the said commencement is expected to be in the 4 th quarter of 2017). : 2 years from the commencement of the Proposed Development. Stage of the Proposed Development : As at the LPD, HRLSB has not commenced any work on the Land and Proposed Development. Category of Proposed Development use : For sale 15

26 The developer s profit is the expected profit to be realised by HRLSB (as provided by the Valuer in the Valuation Report) whom will be undertaking the development and sale of the Proposed Development assuming HRLSB acquires the Land at the current market value of RM17,000,000. The expected gross development profit is the expected profit to be realised by our Company from the Proposed Acquisition (i.e., acquisition of HRLSB which owns the Land, as per the computation set out above) as our enlarged Group will undertake the Proposed Development after the completion of the Proposed Acquisition. The Proposed Development is expected to be funded through a combination of internally generated funds of our enlarged Group (i.e., after the Proposed Acquisition), progressive collections from sales billings, bank borrowings and/or fund raising exercise (if necessary), the proportion of which has yet to be determined at this juncture. The actual proportion of the sources of funding for the Proposed Development will depend on, among others, the demand/take-up rate of the properties Salient terms of the SSA The salient terms and conditions of the SSA include, inter alia, the following: Purchase Consideration The purchase consideration for the Sale Shares was initially RM16,000,000 based on the share sale agreement for the Proposed Acquisition dated 25 January Subsequently, our Company and the Vendors entered into the Supplemental SSA to revise the Purchase Consideration* to RM14,800,000 and to vary certain terms and conditions of the share sale agreement dated 25 January 2017 in relation to the said revision. Note: * The Purchase Consideration was revised in view of the recognition of provision for deferred tax liability at 24% on the revaluation surplus arising from the revaluation of the Land in HRLSB, subsequent to the share sale agreement dated 25 January Thus, the Purchase Consideration for the Sale Shares shall be RM14,800,000 only and shall be paid by our Company to the Vendors in the proportions set out in Section of Part A of this Circular. The Purchase Consideration shall be satisfied by part cash (54.05%) of RM8,000,000 and part by the issuance of 42,027,194 new Asia Poly Shares (45.95%) at the issue price of RM (being the 5D-VWAP of Asia Poly Shares up to and including 24 January 2017, being the latest practicable date prior to entering into the SSA of RM0.1618) amounting to RM6,800,000 in the following manner: (i) the deposit amounting to 10% of the Purchase Consideration (i.e., RM1,480,000) ( Deposit )^ shall be paid upon the signing of the SSA; Note: ^ As at the LPD, our Company has paid the Deposit. 16

27 (ii) a redemption sum amounting to 21.62% of the Purchase Consideration (i.e., RM3,200,000) ( Redemption Sum ) shall be paid within 14 days from the day HRLSB obtains the redemption statement (for the redemption of the Land by the Vendors) from Ambank; and The Vendors confirmed in the SSA that the amount owing to Ambank^ as at the date of the SSA does not exceed the Redemption Sum. Note: ^ As at the Announcement LPD, the term loan and overdraft outstanding were RM2.88 million and RM0.28 million, respectively. As at the LPD, the term loan and overdraft outstanding were RM2.07 million and RM0.20 million, respectively. The Land shall be redeemed by the Vendors and shall be free from any liens, charges and encumbrances prior to the completion of the Proposed Acquisition. (iii) the balance of the Purchase Consideration (i.e., RM10,120,000 out of which RM6,800,000 is to be paid via the issuance of the Consideration Shares) shall be paid on the completion date which is a date falling within 45 market days from the date the last of the conditions precedent ( Conditions Precedent ) is fulfilled ( Completion Date ) Conditions Precedent (a) The sale and purchase of the Sale Shares shall be conditional upon the fulfilment of the following within 5 months ( Stipulated Period )* of the date of the SSA or such other period as the parties may mutually agree in writing: (i) (ii) (iii) (iv) (v) (vi) our Company obtaining the approval of our shareholders in a general meeting for the acquisition of the Sale Shares and the issue of the Consideration Shares; our Company obtaining the approval of our shareholders in a general meeting for the proposed diversification of its business as a result of the acquisition of the Sale Shares; our Company obtaining the approval of our board of directors for the acquisition of the Sale Shares respectively; our Company obtaining the approval of Bursa Securities for the listing and quotation of the Consideration Shares; the charge on the Land to Ambank being discharged and the Land being free from any liens, charges and encumbrances; and the parties obtaining such other approvals as shall be necessary under the laws or from the regulatory authority for the completion of the sale of the Sale Shares herein. Note: * The Stipulated Period has been extended until 24 November 2017 via a letter of extension dated 4 July

28 (b) In the event that the Conditions Precedent are not fulfilled and/or waived by our Company within the Stipulated Period, the following shall take place on or before the expiry of 14 days from the day next following the expiry of the Stipulated Period: (i) (ii) the Vendors shall refund our Company, together with accrued interest, the Deposit and the Redemption Sum (if applicable); our Company shall return or cause to be returned to the Vendors, all documents and things (whether original or copies) forwarded to our Company by the Vendors hereunder (including all documents provided to or obtained by our Company in the course of its due diligence review on HRLSB), if any; and thereafter, the SSA shall be mutually terminated and shall have no further force and effect with neither party having any rights and obligations against the other save and except for any antecedent breaches. (c) The Vendors and our Company shall use their respective best endeavours to ensure that the SSA becomes unconditional on or before the expiry of the Stipulated Period Completion On the Completion Date, the Vendors shall complete the sale of the Sale Shares at a place to be mutually agreed by the parties, failing which, it shall be held at the office of our Company by the delivery of: (i) (ii) (iii) (iv) (v) (vii) the original share certificates to the Sale Shares; the valid and registrable memoranda of transfer of the Sale Shares duly executed by the Vendors in favour of our Company together with the relevant stamping pro forma; the resolution of the directors of HRLSB approving the transfer of the Sale Shares in favour of our Company; if required, all the statutory and account books of HRLSB, invoices, common seal and all other documents relating to HRLSB; all documents of title, if any, pertaining to the assets of HRLSB and all the necessary authorisations as shall be necessary so as to enable our Company to obtain physical possession of the assets of HRLSB; and such waivers, consents or other documents as may be required to give a good title to the Sale Shares and to enable our Company or its nominee(s) to become the registered owner(s) of the Sale Shares. [The rest of this page has been intentionally left blank] 18

29 Default (a) In the event that any party being either our Company or the Vendors shall: (i) (ii) neglect or by wilful default, fail or refuse or be unable to complete this transaction in accordance with the provisions herein; or breach any of the material provisions of the SSA; the party not in breach of the SSA shall be entitled at its absolute discretion to elect either to: (aa) (bb) give notice in writing ( Termination Notice ) to the party in default ( Defaulting Party ) specifying the breach(es) complained of, and if the Defaulting Party fails to remedy the breach(es) within 14 days of receipt of the Termination Notice, the party not in default may without further reference to the Defaulting Party terminate the SSA, in which event the provisions as prescribed in Section (b) of Part A of this Circular shall apply and thereafter the SSA shall be terminated and the Vendors and our Company shall have no further claims against each other save and except for any antecedent breaches; or alternatively complete the SSA, in which case the remedy of specific performance of the SSA shall be available to the party not in default, and thereafter the party not in default may claim for such damages, losses (excluding loss of profits, goodwill and reputation), costs, expenses or outgoings which remain outstanding despite having obtained specific performance. (b) In the event that the SSA is terminated in accordance with Section (a)(aa) of Part A of this Circular, then: (i) if the Defaulting Party are the Vendors, the Vendors shall, within 14 days from the day after the expiration of the 14 day period referred to in Section (a)(aa) of Part A of this Circular, (aa) (bb) duly refund and/or authorise to be refunded to our Company, the Deposit and the Redemption Sum (if applicable), together with accrued interest of 3.50% per annum, and all other monies paid by our Company to the Vendors hereunder (if any); and pay to our Company a sum amounting to 10% of the total Purchase Consideration being the agreed liquidated damages, and in exchange thereof, our Company shall return all documents and things forwarded by the Vendors in relation to the SSA, save and except where our Company 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 is reasonably possible; and (ii) if the Defaulting Party is our Company, the Vendors shall refund the Deposit and the Redemption Sum (if applicable), together with accrued interest of 3.50% per annum, to our Company. 19

30 Shareholder s advances (a) (b) DYBL in his capacity as a shareholder of HRLSB has been making monetary advances to HRLSB for working capital purposes. As at the date of the SSA the total Advances by DYBL to HRLSB is RM6,019, only. In consideration of our Company agreeing to enter into the SSA, DYBL expressly and irrevocably forgives the Advances by DYBL and waives all his rights to claim for the Advances by DYBL from HRLSB. The Advances by DYBL shall de deemed duly settled by HRLSB to DYBL upon the completion of the SSA on the Completion Date. Further to Section (a) of Part A of this Circular, the Vendors hereby irrevocably waive any and all claims which they may have against HRLSB as at the Completion Date Basis and justification in arriving at the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer-willing-seller basis, after taking into consideration of, amongst others, the following: RM The unaudited net liabilities of HRLSB as at 31 December 2016 (1,192,678) Add: Net revaluation surplus 6,844,035 (i) Add: Waiver of Advances by DYBL as at 31 December ,823,217 (ii) 11,474,574 Add: Settlement of the bank borrowings as at 31 December ,329,344 (iii) Adjusted unaudited NA of HRLSB 14,803,918 # Less: Discount mutually agreed between the Vendors and Asia (3,918) # Poly Total Purchase Consideration 14,800,000 # Based on the audited financial statements of HRLSB for the FYE 31 December 2016 as disclosed in Appendix III of this Circular, the impact to the adjusted audited NA of HRLSB and the discount would be as follows: RM The audited net liabilities of HRLSB as at 31 December 2016 (1,170,552) # Add: Net revaluation surplus 6,820,034 (i) Add: Waiver of Advances by DYBL as at 31 December ,823,217 (ii) 11,472,699 Add: Settlement of the bank borrowings as at 31 December ,329,344 (iii) Adjusted unaudited NA of HRLSB 14,802,043 Less: Discount mutually agreed between the Vendors and Asia (2,043) # Poly Total Purchase Consideration 14,800,000 The breakdown of the Purchase Consideration (as detailed in Section of Part A of this Circular) is as follows: Deposit 1,480,000 Balance Purchase Price - Cash 3,320,000 - Issuance of Consideration Shares 6,800,000 Purchase consideration for the Sale Shares payable to the Vendors 11,600,000 Add: Redemption Sum 3,200,000 Total Purchase Consideration 14,800,000 20

31 Notes: (i) ^ The net revaluation surplus was arrived at as follows: RM Market value of the Land 17,000,000 Less: Unaudited net book value of the Land as at 31 December 2016 (7,994,691) # Revaluation surplus 9,005,309 Less: Deferred tax liabilities at 24%^ (2,161,274) Net revaluation surplus 6,844,035 Pursuant to the MFRS 112 para 51, the measurement of the deferred tax liabilities would follow the manner in which the management expects to recover the carrying amounts of its assets. As it is the management of Asia Poly s intention is to develop the Land, it will be subject to corporate tax in the future and thus deferred tax liabilities is computed at 24%. The adjustment for the provision of deferred tax liabilities will not result in cash outflow by HRLSB. # The audited net book value of the Land as at 31 December 2016 was RM8,026,271 due to professional fees incurred for the applications of the Master Layout Plan and the Planning Permission of RM31,580 which was not taken up earlier. In view of the said difference, the impact to the net revaluation surplus would be as follows: The net revaluation surplus was arrived at as follows: RM Market value of the Land 17,000,000 Less: Audited net book value of the Land as at 31 December 2016 (8,026,271) Revaluation surplus 8,973,729 Less: Deferred tax liabilities at 24% (2,153,695) Net revaluation surplus 6,820,034 (ii) The Advances by DYBL has increased to RM6,019,217 as at the date of the SSA and to RM7,017, as at the LPD. DYBL in his capacity as a shareholder of HRLSB has been making monetary advances to HRLSB for working capital purposes. In consideration of our Company agreeing to enter into the SSA, DYBL agreed to waive all his rights to claim for the said advances from HRLSB. The Advances by DYBL shall de deemed dully settled by HRLSB to DYBL upon the completion of the SSA on the Completion Date. As such, the waiver of the Advances by DYBL will be treated as a capital contribution reserve (by a shareholder) of HRLSB. (iii) Bank borrowings was RM3,329,344* as at 31 December 2016 comprising the following: RM - Overdraft 297,896 # - Term loan with Ambank 3,031,448 # 3,329,344 * The balance bank borrowings (after excluding the Redemption Sum) is RM129,344. Any amounts in excess of the Redemption Sum at the time the Land is redeemed from Ambank will be assumed by DYBL. As at the LPD, the term loan and overdraft outstanding were RM2.07 million and RM0.20 million, respectively. The Land shall be redeemed by the Vendors and shall be free from any liens, charges and encumbrances prior to the completion of the Proposed Acquisition. # The unaudited and audited values as at 31 December 2016 are the same. 21

32 Premised on the above, our Board (save for DYBL being the Interested Person) is of the view that the Purchase Consideration is justifiable Basis and justification of the issue price of the Consideration Shares The issue price of RM per Consideration Share was arrived at after taking into consideration the 5D-VWAP of Asia Poly Shares up to and including 24 January 2017, being the latest practicable date prior to entering into the SSA of RM The basis of determining the issue price of the Consideration Shares was in accordance with marketbased principles and the 5D-VWAP represents the current weighted average trading price of Asia Poly Shares up to the said latest practicable date. The Purchase Consideration of RM14,800,000 will be satisfied via a combination of the Cash Consideration and issuance of the Consideration Shares. The part settlement via the Consideration Shares will ease the strain on our Group s cash flow as the Cash Consideration is expected to be financed via our Group s internally generated funds. Premised on the above, our Board (save for DYBL being the Interested Person) is of the view that the issue price and the part settlement of the Purchase Consideration via the issuance of the Consideration Shares is justifiable Mode of satisfaction of Purchase Consideration The mode of satisfaction of the Purchase Consideration to the Vendors is as follows: Equity interest in HRLSB to be acquired from the Vendors DYBL YBH YBT Total 80.00% 10.00% 10.00% % RM RM RM RM Apportionment of the Deposit payable to Vendors 1,184, , ,000 1,480,000 Apportionment of balance cash payable to Vendors 2,656, , ,000 3,320,000 Apportionment of Redemption Sum 2,560, , ,000 3,200,000 Cash Consideration 6,400, , ,000 8,000,000 Settlement of part Purchase Consideration via the issuance of Consideration Shares 5,440, , ,000 6,800,000 Total Purchase Consideration 11,840,000 1,480,000 1,480,000 14,800,000 Number of Consideration Shares to be issued at the issue price of RM ,621,756 4,202,719 4,202,719 42,027, Ranking of the Consideration Shares The Consideration Shares shall, upon allotment and issuance, rank pari passu in all respects with the existing Asia Poly Shares, save and except that they shall not be entitled to any dividends, rights, allotments and/or other distributions that are declared, made or paid to the shareholders of our Company, the entitlement date of which is prior to the date of allotment and issuance of the Consideration Shares Liabilities to be assumed There are no liabilities, including contingent liabilities or guarantees to be assumed by our Company arising from the Proposed Acquisition. 22

33 Additional financial commitment required Save for the future development costs to be incurred for the Proposed Development (as set out in Section of Part A of this Circular), there is no other additional financial commitment required by our Company arising from the Proposed Acquisition Sources of funding The Purchase Consideration of RM14,800,000 will be satisfied via a combination of the Cash Consideration and issuance of the Consideration Shares. The Cash Consideration is expected to be satisfied via our Group s internally generated funds Original cost of investment The Vendors original cost of investment in HRLSB is as follows: Vendor Date of investment No. of HRLSB Shares Cost of investment (RM) DYBL 26 December June , , January , ,000 * YBH 15 January ,000 50,000 * YBT 15 January ,000 50,000 * Total 500, ,000 Note: * Purchased from an original shareholder who is an independent third party. Based on the above, the total original cost of investment of the Vendors in HRLSB is RM500,000. In addition, pursuant to the SSA DYBL has agreed to waive all his rights to claim for the Advances by DYBL of RM7,017, as at the LPD which shall be treated as a capital contribution reserve (by a shareholder) of HRLSB, subject to the completion of the SSA. As such, the total original cost of investment of the Vendors in HRLSB will increase to RM7,517, [The rest of this page has been intentionally left blank] 23

34 2.3 Proposed Variation Our Company raised the Rights Proceeds from the Two-Call Rights Issue of Shares with Warrants. Our Company wishes to undertake the Proposed Variation as follows: Description Actual proceeds raised and proposed utilisation (1) (RM 000) Amount utilised as at the LPD (RM 000) Amount unutilised as at the LPD (RM 000) Proposed Variation (RM 000) After Proposed Variation (RM 000) Expected timeframe for the utilisation from the date of receipt on 21 December 2015 Repayment of bank borrowings 3,162 3, Within 12 months Setting up of a waste management 3,000-3,000 (3,000) - Within 18 months plant (2) Working capital 2,000 2,000-3,000 3,000 Within 18 months (3) Estimated expenses in relation to the previous corporate exercises Within 2 weeks Total 8,792 5,792 3,000-3,000 Notes: (1) As disclosed in the Rights Circular. (2) As disclosed in the Rights Circular, our Group intended to utilise RM3.00 million of the proceeds to fund the entire estimated cost to set up a waste management plant (a separate building with a built-up area of approximately 2,400 sq. m. beside our Group s current production factory on our existing land in Klang, Selangor) to recover the scrap/strip (i.e., waste) from its current business. The scrap/strip arises mainly from the manufacturing process as the acrylic sheets manufactured would be slightly larger than the customers order. The acrylic sheets would then be cut to the actual size as per the customers order thus resulting in scrap/strip pieces of acrylic sheets. By setting up the waste management plant, this will enable our Group to breakdown and depolymerise the scraps/strips from polymer units to monomer units which are known as DMMA. The DMMA will have an average purity of 96% to 98% and can be used in our Group s own production of cast acrylic sheets, where the DMMA can be mixed with MMA to produce new cast acrylic sheets. (3) The intended timeframe for utilisation (from 21 December 2015) is proposed to be revised from 18 months to 30 months (i.e., from 20 June 2017 to 20 June 2018). 24

35 Our Company is proposing to redeploy the RM3.0 million allocated for setting up of a waste management plant as working capital for our Group to pay its trade creditors for the supplies of raw materials. Taking into consideration of our Group s cash flow position and the decreased revenue as set out below, our Company will not be setting up the waste management plant at this juncture. Nevertheless, in view of benefits to be derived, our Company had applied for a grant from the Ministry of Science, Technology and Innovation on 28 January 2016 to fund the setting up of the said plant but was unable to obtain the grant. The price of our Group s main raw materials (comprising mainly MMA which is used in the manufacture of cast acrylic sheets) has been on an increasing trend due to, among others, fluctuations in crude oil prices, the continued weakening of RM against the USD (as our Group s purchases are mainly in USD) and a shortage of MMA in the Asia Pacific region. Notwithstanding the increases in the price of MMA, our Group has continued its purchases of MMA from suppliers due to our existing contracts to purchase 500 to 600 tonnes of MMA per month. Our Group also needs to maintain certain production levels in its factory in order to arrive at a reasonable cost per unit of cast acrylic sheets it produces which in turn would affect its profit margin. Our Group s most efficient production usage of MMA is approximately 500 to 600 tonnes of MMA per month. However, our Group s current production usage of MMA is approximately only 400 to 500 tonnes of MMA per month due to the shortage of MMA in the Asia Pacific region and lower demand from customers. The shortage of MMA also resulted in higher MMA prices which led to lower demand from our customers and thus decreased revenue # for our Group. As such, our Group s inventories balance has increased from RM10.04 million as at 30 September 2016 (unaudited) to RM10.98 million as at 31 December 2016 (audited) and remained high at RM9.42 million as at 31 March 2017 (unaudited). The inventories balance represented 13.53%, 14.02% and 11.03%, respectively of our Group s total assets. Our Group s revenue also decreased from RM56.76 million for the 9-month FPE 31 December 2015 (audited) (RM75.68 million on an annualised basis) to RM58.15 million for the FYE 31 December 2016 (audited). For the latest 3-month FPE 31 March 2017 (unaudited), our Group revenue of RM18.35 million was quite consistent with the revenue for the 3-month FPE 31 March 2016 (unaudited) of RM18.51 million. # Please refer to Section 5.6(d) of this Circular for the markets of our Group s products and breakdown of revenue between domestic and foreign sales for the latest audited FYE 31 December Our Group s commitment towards our existing contracts to purchase 500 to 600 tonnes of MMA per month from our suppliers is straining the cash flow of our Group. Furthermore, the credit period granted to our Group for trade purchases is shorter (ranging from 30 to 90 days) than the credit period granted by our Group to our customers (ranging from 30 to 120 days). Our Group s trade receivables balance increased from RM12.44 million as at 30 September 2016 (unaudited) to approximately RM13.59 million as at 31 December 2016 (audited) and to RM14.43 million as at 31 March 2017 (unaudited). The trade receivables balance represented 16.77%, 17.36% and 16.89%, respectively of our Group s total assets. Our Group has been paying its trade creditors via a combination of bank borrowings and internally generated funds as the cash flow of our Group generated from its operations is not sufficient. For the FYE 31 December 2016 (audited), the net cash generated from operations was RM1.55 million (9-month FPE 31 December 2015: RM8.54 million * (audited)). For the latest 3-month FPE 31 March 2017 (unaudited), our Group reported a net cash used in operations of RM1.26 million compared to the net cash used in operations of RM0.56 million for the 3-month FPE 31 March 2016 (unaudited). Our Group s trade creditors balance also increased from RM7.56 million as at 30 September 2016 (unaudited) to approximately RM9.53 million as at 31 December 2016 (audited) and to RM11.27 million as at 31 March 2017 (unaudited). The trade payables balance represented 40.57%, 50.79% and 52.19%, respectively of our Group s total liabilities. * Our Company changed its year end from 31 March to 31 December on 25 May On 8 March 2017, our Company had completed the Private Placement which raised RM4.85 million, out of which RM4.75 million will be utilised to pay down its trade creditors for the supplies of raw materials as and when they become due. As at the LPD, our Company has utilised approximately RM1.0 million to pay down our trade creditors. 25

36 Notwithstanding the above, our Group foresees that its internally generated funds may not be timely enough and/or sufficient. As at the LPD, our Group s trade creditors balance stood at RM14.87 million. Our Board is of the view that the Proposed Variation is required for the payment of trade creditors as and when they become due. As such, the Proposed Variation will enable our Group to address its immediate working capital and cash flow requirements. Furthermore, as stated in Section 3 of Part A of this Circular, our Company intends to build a coating plant to hard coat the cast acrylic sheet it manufactures. The coating plant will be set up on the empty land space (i.e., behind our Group s existing production factory in Klang) which was originally earmarked for the setting up of the waste management plant. In arriving at the decision above, our Board has taken into consideration, among others, current business trends and our customers feedback and requirements. Based on our Group s observation and internal assessment over the past 1 year, our Group noted and believes that the hard coating of cast acrylic sheets would yield higher returns and has good prospects (as set out in Sections 5.2 and 5.3 of Part A of this Circular) as this is expected to result in higher revenue and improved gross profit margin for our Group. In view that the Proposed Variation is a material variation and will result in a deviation of 34.12% in the original utilisation of the Rights Proceeds as disclosed in the Rights Circular, our Board will be seeking the approval of the shareholders of our Company for the Proposed Variation at the EGM to be convened. 2.4 Proposed Diversification Presently, our Group is principally involved in the Existing Business. As mentioned in Section of Part A of this Circular, our Group intends to undertake the Proposed Development. The Proposed Development represents our Group s initial foray into property development. Our Group intends to diversify and expand its business activities to include property development in order to provide an additional revenue and profit stream to our Group. Our Board believes that the Proposed Diversification (via the Proposed Development and any new projects to be secured in the future) is expected to contribute positively to our Group s future earnings, improve our Group s financial position and complement its existing cast acrylic business. Thus, the Proposed Diversification is expected to enhance our Group s profitability and returns on shareholders funds. Taking into consideration the above and any new projects be secured in the future, our Board expects the property development business to potentially contribute at least 25% or more of the net profits of our Group or result in a diversion of 25% or more of our Group s NA. As such, our Board proposes to seek the approval of the shareholders of our Company for the Proposed Diversification pursuant to Rule of the Listing Requirements, at an EGM to be convened. Our Company has identified a key management personnel namely Gan Eng Tien whom will be joining our Group upon completion of the Proposed Acquisition. His curriculum vitae is as follows: (i) Gan Eng Tien Gan Eng Tien, age 49, graduated the University of Norwich, United Kingdom in 1991 with a Bachelor of Arts (majoring in Economics). He obtained his Masters of Science in International Finance from the University of Surrey, United Kingdom in He started his career in property development with Bandar Subang Sdn Bhd (a subsidiary of Farlim Group Berhad) in 1994 as a Credit Executive. Subsequently, he joined the Brunsfield group of companies ( Brunsfield Group ) and was with the Brunsfield Group from 1996 to 2012 where his last position held was Assistant General Manager in charge of the Sales and Marketing Division. 26

37 During his employment in Brunsfield Group, he was involved in several mid to high end developments namely Brunsfield Riverview in Shah Alam, Brunsfield Cityview in Cheras and Brunsfield Embassyview in Ampang as well as the overall commercial development of Oasis Ara Damansara Township (a joint venture between Brunsfield Group and Sime Darby Property Berhad) in He was also involved in several joint venture developments between Brunsfield Group and Sime Darby Property Berhad for the developments in Kenny Hills and Subang Jaya. Throughout his employment with Brunsfield Group, he was involved in sales and marketing, product development and credit administration He joined the High Reserve group of companies in 2012 as Project Director where he continues to be in charge of its proposed developments in Puchong and Cyberjaya. He is responsible for the planning and implementation of property development projects. His role includes, among others, identification of land banks, tender and award of contract works as well as liaison with local authorities, appointment and management of consultants, design and product development as well as sales and marketing. He has accumulated over 20 years of experience in the property development industry. Our Board believes that our Group has the capacity, capabilities and resources to diversify into property development after taking into consideration the competency and experience of Gan Eng Tien as set out above. Moving forward, our Company will be setting up a team (whom will be involved in property development) and employ other key management personnel with experience in, amongst others, engineering, project management and marketing to manage the Proposed Development as well as any future projects. The size, structure and the future recruitment process of the team has yet to be determined at this juncture as this would depend on, amongst others, the completion of the Proposed Acquisition, launch of new projects in the future, availability of qualified and suitable candidates as well as the requirements of the Proposed Development and future projects, if any. Premised on the above, the venture and diversification into property development is expected to provide an additional source of revenue and profits to our Group. Our Group intends to continue with the Existing Business in largely the same manner. If the Proposed Diversification is approved by shareholders, our Group will in the future be principally involved in the Existing Business and property development. 2.5 Proposed Amendments The Proposed Amendments entail the consequential amendments to the Constitution (M&A) of our Company to facilitate the creation of ICPS. [The rest of this page has been intentionally left blank] 27

38 3. UTILISATION OF PROCEEDS Based on the issue price of RM0.05 per ICPS, the Proposed Rights Issue of ICPS with Warrants will raise total gross proceeds of RM5,000,000 under the Minimum Scenario and up to RM19,501,193 under the Maximum Scenario. The gross proceeds will be utilised in the manner as set out below: Description Notes Minimum Scenario Maximum Scenario Expected time frame for utilisation of proceeds (from the date of listing of the ICPS with Warrants) RM 000 RM 000 Setting up of a coating plant (1) 4,100 12,350 Within 18 months Working capital (2) - 3,251 Within 12 months Repayment of bank borrowings (3) - 3,000 Within 12 months Estimated expenses in relation to the Proposals (4) Within 2 weeks Total estimated proceeds 5,000 19,501 Notes: (1) Our Group is principally involved in the Existing Business. The cast acrylic sheets are made from 100% virgin MMA sourced from Singapore and are used for various purposes such as the following: building applications (e.g., glazing, skylights and interior decorative partitions); food industry/catering (e.g., bar fittings, cinema ice-cream and vending trays (illuminated) and display counter covers); domestic/household (e.g., bathroom cabinets, coffee tables and furniture); medical (e.g., hospital trays and equipment, incubators and illuminated eye testing charts); transport (e.g., boat cabin windows, boat windscreens and car accessories/visors); and miscellaneous applications (e.g., bus shelter glazing, display cabinets, fire hydrant plates and signages). By leveraging on our Group s existing technologies and expertise in the polymer industry, our Group intends to utilise up to RM12.35 million of the proceeds to fund the entire estimated cost to set up a coating plant (with a built-up area of 1,632 sq. m.) to hard coat the cast acrylic sheets produced by our Group. Hard coating refers to the application of a very thin layer of coating (about 5 microns) to an underlying material (also known as a substrate) such as acrylics or polycarbonates in order to protect it from abrasion, scratching and chemical damage. A hard coat film is capable of improving the surface hardness of cast acrylic sheets produced by our Group and prevents the surface from being scratched. Hard coatings are made of sol-gels of silica and nanoparticles that are applied in a liquid form to the substrate and then hardened to a glass-like hard finish. This requires heating the coated materials at a certain temperature for a certain period of time in a dustfree environment. This helps to prevent highly visible imperfections on the coated surface. The end result of the coating process is the full development of the desired properties on the cast acrylic sheets. The hard coating can be on either one or both sides of acrylics or polycarbonates. 28

39 By setting up the coating plant, our Group will be able to hard coat the cell cast acrylic sheets it manufactures. When a layer of hard coating is applied to acrylic sheets, a pencil hardness test # value of between 4H and 6H can be achieved. As at the LPD, there are no cell cast acrylic sheet manufacturers in Malaysia that are capable of hard coating the acrylic sheets to be used in products such as awnings, skylights, signage and furniture. By hard coating acrylic sheets, our Group will be able to produce acrylic sheets that are more resistant to abrasion and scratching, spurring increased usage of hard coated acrylic sheets in different application markets (such as advertising and visual communications, architectural and building construction, transportation and furniture manufacturing) resulting in higher revenue and improved gross profit margin for our Group. # The pencil hardness test is used to determine the abrasion and scratch resistance of a coating surface by using pencils to scratch the surface. It utilises the varying hardness values of graphite pencils to evaluate a coating s hardness, being the capacity of a given coated surface to resist scratching, marring or gouging. When expressing the measurement of pencil hardness, the scale ranges from 6B (softest) to 9H (hardest). Our Group intends to utilise up to RM12.35 million for the setting up of a coating plant in the following manner: Minimum Scenario Maximum Scenario Description RM( 000) RM( 000) (a) Setting up of a coating line 4,100 7,500 (b) Setting up of a clean room - 2,600 (c) Setting up of warehouse and civil - 1,550 engineering works (d) Setting up of an electrical substation Total 4,100 12,350 (a) Our Group intends to set up a semi-automated coating line for the hard coating of cast acrylic sheets. The coating line will have a built-up area of sq. m. The coating line is designed to be able to hard coat up to 617 pieces of cast acrylic sheets a day or up to 18,510 pieces of cast acrylic sheets per month (i.e., 617 pieces x 30 days). At 80% capacity (which is the estimated optimum operating efficiency), the coating plant will be able to hard coat approximately 494 pieces of cast acrylic sheets per day or approximately 14,820 pieces of cast acrylic sheets per month (i.e., 494 pieces x 30 days). The breakdown of the setting up of the coating line is as follows: Description RM( 000) (i) Main coating line 6,600 * (ii) Other miscellaneous components, shipping and 900 installation costs Total 7,500 * Equal to approximately USD1.54 million based on the USD/RM middle rate of as at p.m., LPD. (Source: Bank Negara Malaysia website) (i) Our Group has engaged an external consultant for the design and cost estimation of the main coating line, which will consist of 1 cleaning machine (for cleaning and surface treatment), 1 flowing machine (for coating), 1 drying machine, 1 curing machine as well as 1 conveyor together with 4 modular conveyors (to connect all the machines together), 3 pumps (for the cleaning, surface treatment and coating sections) and 3 tanks (for the cleaning, surface treatment and coating chemicals). The external consultant performed a complete assessment of the main coating line and the cost is estimated to be approximately USD1.50 million after taking into consideration, among others, the size of the cast acrylic sheets manufactured by our Group. 29

40 (ii) Consists of the purchase of other miscellaneous components for the coating line such as pallet transfer carriages, loading and unloading tables, additional conveyors, catch trays, inspections stations, rework stations and a lamination machine together with its associated conveyors, shipping and installation costs of the coating line. This will be set-up internally by Asia Poly. (b) (c) (d) As mentioned above, hard coating has to be carried out in a dust-free environment. Our Group intends to set up an ISO class 7 clean room to house the coating line to get the best coating quality. A clean room is a controlled environment that has a low level of pollutants such as dust, airborne microbes, aerosol particles, and chemical vapours. An ISO class 7 clean room has at most 2,930 particles of 5 microns in size per cubic meter of air. The setting up of the clean room includes the setting up of other associated systems such as the polyurethane (PU) partitioning system, internal and external ceiling system, flooring system and air conditioning. Our Group intends to set up a new warehouse with the proceeds from the Proposed Rights Issue of ICPS with Warrants on the land space behind its existing production factory. The estimated cost of setting up the new warehouse is RM1.55 million. In the event only the Minimum Scenario is achieved, our Company will fund the RM1.55 million required for the setting up of the new warehouse via a combination of internally generated funds and/or bank borrowings. The new warehouse will have a built-up area of approximately 1,632 sq. m. The construction of the warehouse is estimated to take 10 to 12 months after the completion of the Proposed Rights Issue of ICPS depending on when our Group obtains approvals from the relevant authorities. The approvals required can only be determined upon submission of the proposal by the external consultants to the local town council for the construction of the warehouse. Our Group will appoint contractors to conduct the necessary civil engineering works such as piling, wiring and piping. The purpose of setting up the new warehouse is to house the new coating line and the clean room. Our Group intends to set up an electrical substation (consisting an 11 kilo-volt-ampere ( kva ) transformer) to ensure that all of our Group s new equipment/machines have sufficient electricity so that there is no sudden loss of production due to lack of electricity. Our Group s current 10 kva transformer is currently operating at 90% capacity. Currently, our Group has procured quotations from several external consultants for the specialised machines (i.e., cleaning machine, flowing machine, drying machine and curing machine) and contractors for the setting up of the new specialised buildings (i.e., the clean room, warehouse and electrical substation) in relation to the coating plant. The setting up of the coating plant and related construction works will commence once the proceeds have been received. Barring any unforeseen circumstances, the coating plant is expected to be completed within 18 months and will commence operations within 20 months from the date of listing of the ICPS. Any surplus or shortfall in the breakdown of proceeds allocated for the setting up of the coating plant will be adjusted accordingly to/from the categories set out above. For the avoidance of doubt, the estimated cost for the setting up of the coating plant is the same for both the Minimum and Maximum Scenarios. In the event only the Minimum Scenario is achieved, our Company will fund the balance of up to RM8.15 million for the setting up of the coating plant via a combination of internally generated funds and/or bank borrowings. The proportion of such funding has yet to be determined at this juncture as it will depend on, among others, the level of proceeds raised, status of our Company s business as well as the economic conditions then as the proceeds are expected to be utilised within 18 months from the date of listing of the ICPS. (2) Our Group intends to utilise RM3.25 million from the proceeds raised under the Maximum Scenario as working capital for our Group to pay its trade creditors for the supplies of raw materials. 30

41 As mentioned in Section 2.3 of Part A of this Circular, our Group requires more funds to finance its purchases of the MMA. This is in line with our Group s intention to reduce its reliance on bank borrowings for working capital purposes as reflected by the decreased balances compared to 31 December Our Group s bank borrowings were RM14.01 million as at 31 December 2015, RM3.08 million as at 31 December 2016 and RM4.74 million as at the LPD. (3) Our Group intends to utilise RM3.00 million of the proceeds raised under the Maximum Scenario to repay part of our Group s bank borrowings. As at the LPD, our Group s total bank borrowings were approximately RM4.74 million and the prevailing interest rate of our Group is approximately 4.75% per annum. Our Group anticipates interest savings of approximately RM0.14 million per annum as the result of the repayment of bank borrowings. (4) The estimated expenses consist of professional fees and fees payable to the relevant authorities. Any surplus or shortfall in the actual amount of the expenses for the Proposals will be adjusted proportionately to/from the working capital of our Group. The actual proceeds to be raised from the Proposed Rights Issue of ICPS with Warrants is dependent on the actual number of ICPS to be issued. In the event the proceeds raised is in between the Minimum Scenario and Maximum Scenario, the proceeds in excess of the Minimum Scenario will be utilised for the setting up of the coating plant. Pending utilisation of the proceeds from the Proposed Rights Issue of ICPS with Warrants for the abovementioned purposes, the proceeds will be placed in deposits with financial institution or short-term money market instruments as our Board may deem fit. The interest derived from the deposits with the financial institution or any gain arising from the short-term money market instruments will be used for working capital purposes. The exact quantum of proceeds that may be raised by our Company pursuant to the conversion of the ICPS and/or exercise of the Warrants will depend upon the actual number of ICPS converted and/or the Warrants exercised during the tenure of the ICPS and/or the Warrants as well as the Conversion Ratio. The proceeds to be raised from the conversion of the ICPS the exercise of the Warrants shall be utilised for working capital purposes (such as staff costs, rental costs, audit fees, secretarial fees, utilities and other sundry expenses) of which the exact timeframe, quantum and the breakdown for the utilisation cannot be determined at this juncture. 4. RATIONALE FOR THE PROPOSALS 4.1 Proposed Rights Issue of ICPS with Warrants After due consideration of the various methods of fund raising available for the purposes as stated in Section 3 of Part A of this Circular, our Board is of the opinion that the Proposed Rights Issue of ICPS with Warrants is deemed to be the most suitable and expedient form of fund raising for our Company at this juncture after taking into consideration the following: (i) (ii) the issuance of ICPS with Warrants allows our Company to raise funds without incurring interest costs as compared to other means of financing, such as bank borrowings or the issuance of debt instruments; the issuance of ICPS with Warrants enhances the cash flow of our Group and enables our Group to fund the purposes set out in Section 3 of Part A of this Circular which are expected to contribute positively to the future earnings of our Group and improve the financial performance of our Group; 31

42 (iii) (iv) the issuance of ICPS with Warrants provides the necessary and sufficient level of funding for the purposes set out in Section 3 of Part A of this Circular while reducing the immediate dilution effect on the EPS, which would otherwise have an immediate impact if it were an issuance of ordinary shares instead, as the ICPS are expected to be converted over a period of time during the conversion period; and the issuance of ICPS with Warrants also provides an opportunity for existing shareholders of our Company to increase their equity participation in our Company by converting the ICPS and exercising the Warrants into new Asia Poly Shares. 4.2 Proposed Acquisition The Land is located off the south-eastern side boundary onto Jalan Semenyih and within Mukim of Semenyih, District of Ulu Langat and State of Selangor Darul Ehsan. Semenyih has seen rapid growth in terms of development of new amenities such as hypermarkets and fast food outlets in the last 10 years, all within the township. Residential, commercial and industrial elements are what form the Semenyih township, which consists mostly of landed properties, but more high rise developments can be seen in newly completed and on-going projects. Plus, the newly opened LEKAS Highway has very much benefitted the townships. The area s potential for growth has risen considerably and there are currently more real estate hotspots coming out around and within Semenyih all the way to Beranang and Kajang town. Semenyih is attractive due to large tracts of land still available for future development and the land within this area is relatively more affordable compared to other parts of the Klang Valley. The Land is approachable from Kuala Lumpur city centre via Lebuhraya Hubungan Timur Barat proceed onto Persiaran Saujana Impian. Access is then turning onto Pintasan Kajang Semenyih Bypass and turning left onto Jalan Kajang Semenyih for about 1.5 km where the Land is located at the left side of the said road. The Land is also accessible via two major highways namely Sistem Lingkaran Lebuhraya Kajang (SILK) and Lebuhraya Kajang Seremban (LEKAS). Apart from having good accessibility, the Land has the advantage of being located nearby established housing estates including Bandar Sunway Semenyih, Taman Hiew Piow, Taman Aik Ann, Taman Sahabat, Taman Desa Semenyih, Taman Paling Jaya, Taman Sri Tanjung, Taman Semenyih Sentral, Taman Pelangi Semenyih (Residential), Seksyen 5 Bandar Rinching, Bandar Rinching Seksyen 6 and Setia Ecohill. The nearby industrial scheme are Kawasan Perindustrian Hi-Tech 6, Taman Perindustrian Sri Haneco, Taman Industri Villaraya, Kawasan Perindustrian Beranang, Taman Perindustrian Mahkota. There are also prominent developments and landmarks namely Tesco Semenyih, The Store Semenyih, MARA Japan Industrial Institute and Setia Ecohill Development as well as public facilities and amenities within close vicinity to the Land. (Source: Valuation Report) The Proposed Acquisition will enable our Company to acquire HRLSB which owns the Land and to undertake the Proposed Development which is expected to have good saleability considering the Land is located in a strategic area with significant infrastructure improvements undertaken over the past years as mentioned above. [The rest of this page has been intentionally left blank] 32

43 Furthermore, as our enlarged Group (i.e., after the Proposed Acquisition) intends to carry out the Proposed Development, the expected profits to be realised by our Company from the Proposed Acquisition may be tabulated as follows: RM GDV (A) : 39,969, (Source: Valuation Report) Total cost (B) : 25,882, Comprising the following: - Cost of investment in HRLSB 14,800, Net GDC* 11,082, * The net GDC was arrived at as follows: GDC (excluding land cost) 19,875, Less: Developer s profit to be earned (8,793,235.54) Net GDC 11,082, (Source: Valuation Report) Expected gross development profit (A) (B) 14,086, Less: Tax payable on the profit at 24% (3,380,780.56) Expected net development profit 10,705, Premised on the above, our Board (save for DYBL being the Interested Person) is of the view that the Proposed Acquisition is in line with our Group s intention to venture into property development which is expected to provide an additional revenue stream and contribute positively to our Group s future financial performance. 4.3 Proposed Variation The management of our Group foresees that the cash flow (from internally generated funds) for the payment of trade creditors for existing and future trade purchases may not be timely enough and/or sufficient. As such, the funds raised from the Proposed Variation will enable our Group to address its immediate working capital and cash flow requirements. 4.4 Proposed Diversification Our Group intends to diversify and expand its business activities in order to enhance its prospects. Our Board believes that the Proposed Diversification would contribute positively to our Group s future earnings, improve our Group s financial position and reduce our Group s dependency on our Existing Business. The additional revenue and profits contribution from the property development business is expected to enhance our Group s profitability and returns on shareholders funds. 4.5 Proposed Amendments The Proposed Amendments are intended to facilitate the Proposed Rights Issue of ICPS with Warrants. 33

44 5. INDUSTRY OUTLOOK AND FUTURE PROSPECTS OF OUR GROUP 5.1 Overview and outlook of the Malaysian economy The Malaysian economy is expected to continue to expand amid a challenging external environment including slower growth in the advanced economies, prolonged low oil prices and volatile financial markets. Gross domestic product grew by 4.1% during the 1 st half of 2016 supported by private consumption and investment activities on the demand side and drive by the services and manufacturing sectors on the supply side. Private consumption is the biggest component of domestic demand contributing 3.1% to real gross domestic product growth during the 1 st half of On the supply side, the services sector remains the key driver of the economy and the leading generator of job opportunities. Total trade rebounded 0.9% to RM948.4 billion (January August 2015: -1.9%; RM940 billion) due to sustained global trade during the first 8 months of the year. Both gross exports and imports rebounded 0.9%, respectively result in a trade surplus of RM52.2 billion (January August 2015: -1.9%; -1.9%; RM51.3 billion). Export growth was supported by higher demand for manufactured and agriculture goods despite weaker mining receipts. Growth in imports was mainly attributed to increasing demand for capital and consumption goods. Gross exports and imports are expected to grow 1.1% and 1.3%, respectively. As a small and highly open economy, Malaysia is vulnerable to developments in the external environment. However, the structural reforms undertaken over the years to diversify the economy and strengthen the financial system, have placed the economy on a stronger footing as well as enhanced its resilience to weather the external challenges. The Malaysian economy is expected to expand between 4% and 5% in 2017 (2016: 4% - 4.5%) The national income, as measured by the gross national income, is estimated to increase by 5.0% to RM39,699 (2016: 4.8; RM37,812). The global economy is expected to improve in 2017, mainly attributed to better growth in the United States as well as stronger performance in the emerging market and developing economics with world trade expected to expand in line with the improvement in global demand. Other downside risks include the possibility of a sharper slowdown in China, volatility in the global financial markets, continued low commodity prices, prolonged low global inflation as well as escalating geopolitical tensions. Against the backdrop of increased uncertainty in the global economy, growth in the Malaysian economy will be underpinned by strong domestic demand, especially private sector expenditure while public sector expenditure will be driven mainly by higher capital investment by public corporations. Strong economic fundamentals such as a stable labour market with full employment, manageable inflation, healthy foreign reserves and a sound financial system with efficient intermediation are expected to support the growth of the economy. Thus, the Malaysian economy is expected to remain on a steady growth path, expanding between 4% - 5% in (Source: Economic Report 2016/2017, Ministry of Finance Malaysia) 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 seasonally-adjusted basis, the economy recorded a growth of 1.8% (4Q 2016: 1.3%). 34

45 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. 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. 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, 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 (Source: Economic and Financial Developments in the Malaysian Economy in the First Quarter of 2017, Bank Negara Malaysia) 5.2 Overview of the cast acrylic sheet industry in Malaysia PMMA also known as acrylics, are tough, highly transparent materials with good dimensional stability, and possess excellent resistance to ultra violet radiation and weathering. Acrylic sheet exhibits glass-like qualities such as clarity, brilliance and transparency, but at half the weight. Typical PMMA grades allow 92% of light to pass through it, which is more than glass or other plastic materials. This outstanding clarity enables the use of acrylic sheets in many different optical and related applications. As they are inherently stable to ultra violet light, acrylic sheets are used for many outdoor applications. Also, they are insoluble in water and are resistant to salty water. PMMA is formed from the polymerisation of MMA, which in turn, is derived from petroleum products. Acrylic sheets manufacturing is a downstream activity of the petrochemical industry. PMMA comes mainly in 3 grades as follows: General purpose grade PMMA is a material widely used in a large number of applications, such as visual merchandising point-of-sale displays and store fixtures, display cabinets and skylights; Sanitary grade PMMA - is a material used for long baths, shower trays and wash basins; and Optical grade PMMA - is a material used to make screens for large light emitting diode televisions and computer monitors. It is also found in screens for smaller electronics gadgets such as cellular phones and mp3 players. Our Company is involved in the manufacturing of general purpose grade PMMA and sanitary grade PMMA (in the form of sheets). These are then fabricated by other companies to be made into visual merchandising point-of-sale displays and store fixtures, display cabinets, awnings, skylights, long baths, shower trays and wash basins. 35

46 The acrylic sheets industry can be segmented by production processes, as follows: Casting is the most common used processing technology for PMMA polymers and cast acrylic sheets are widely used in advertising and visual communications, as well as architectural and construction, owing to their impact strength and resistance to weathering. Cast acrylic sheets can be produced by 2 methods as follows: Cell casting: The MMA is cast between 2 sheets of high quality glass and is polymerised in batches in specially developed ovens and water baths. It is easy to vacumn form, making it ideal for applications where complex shapes are required. Continuous casting: A continuous process where the MMA is polymerised between 2 highly polished stainless steel bands. It offers excellent thickness tolerance. Our Company is involved in the cell casting production process. The extrusion process is used in the manufacturing of optical grade PMMA. In this process, the resin pellets are melted and conveyed in a long horizontal chamber. This chamber is heated, which then melts the polymers and conveys it through a die at the end of the extruder. This die shapes the plastics, which is then cooled. Extruded acrylic sheets offer excellent thickness tolerance. Depending on the end-user requirements and preferences of acrylic sheet manufacturers, acrylic sheets can be manufactured either through the casting or extrusion process. The key attributes of cast acrylic sheets and extruded acrylic sheets are summarised in the table below. Table 1: Key attributes of cast acrylic sheets and extruded acrylic sheets Attributes Cast acrylic sheets Extruded acrylic sheets Batch production Continuous production Excellent clarity High gloss surface Extensive range of colours Extensive range of textures Suitable for longer and more economical production runs Easy maintenance Excellent chemical resistance Good rigidity Lightweight Easily fabricated Weather resistance (Source: Extracted from the IMR Report, Infobusiness) Although acrylic sheets are versatile due principally to their durability and lightness, their surfaces are relatively soft, making them prone to abrasion and scratching. Hard coatings refer to the application of a very thin layer of coating (about 5 microns) to an underlying material (also known as a substrate) such as acrylics or polycarbonates in order to protect it from abrasion and scratching, as well as from chemical damages. A hard coat film is capable of improving the surface hardness and preventing it from being scratched. The pencil hardness test is used to determine the abrasion and scratch resistance of a coating surface by using pencils to scratch the surface. It utilises the varying hardness values of graphite pencils to evaluate a coating s hardness (figure 1). Hardness, in the coated film industry, is the capacity of a given coated surface to resist scratching, marring or gouging. 36

47 Figure 1: Pencil hardness scale (Source: Extracted from the IMR Report, Infobusiness) When expressing the measurement of pencil hardness, the scale ranges from 6B, softest, to 9H, hardest. Both cast acrylic sheets (pencil hardness test value of H) and polycarbonates (pencil hardness test value of HB) are relatively soft polymers and are prone to scratching and damage in some applications. Meanwhile tempered glass is able to achieve a pencil hardness test value of 9, which means that even a 9H pencil would not be able to scratch it. When a layer of hard coating is applied to acrylic sheets, a pencil hardness test value of between 4H and 6H can be achieved (table 2). In the case of polycarbonates, they can achieve pencil hardness test values of between 2H and 5H. The hard coating can be conducted on either 1 or both sides of the acrylics or polycarbonates. Table 2: Pencil hardness test values of cast acrylic sheets, polycarbonates and tempered glass Materials Cast Acrylic Sheets Polycarbonates Tempered Glass Uncoated H HB 9 Hard coated Between 4H to 6H Between 2H to 5H Not Applicable (Source: Extracted from the IMR Report, Infobusiness) The market size in terms of ex-factory sales^ of cast acrylic sheets was about RM97.0 million in Malaysia in 2016, representing a growth of 3.3% over the previous year. In 2017, the market size in terms of ex-factory sales of cast acrylic sheets is expected to expand by another 3.1% to approximately RM100 million in Malaysia. 5.3 Outlook of the cast acrylic sheet industry in Malaysia The outlook of the cast acrylic sheet industry is dependent on the performances of its key end-user industries such as the advertising and visual communications, architectural and building construction, transportation and furniture manufacturing industries. Malaysia implemented Goods and Services Tax (GST) on 1 April 2015, and the new tax regime creates a one-off inflationary pressure that affects consumers as well as businesses. As a result, the retail industry experienced a slowdown, due to a moderation in consumer spending. More cautious spending by consumers, particularly among the low and middle income earners, may delay the recovery of consumer discretionary spending. In a more competitive market, retailers would resort to the use of advertising and visual media such as visual merchandising point-ofsales displays and store fixtures to catch the attention of customers. Among the various types of buildings in Malaysia, the stock of shopping complexes expanded the fastest between 2012 and 2016, at a CAGR of 5.0% (table 3). As at the fourth quarter of 2016, there was an incoming supply of 829,687 residential units, 77,365 shop units, 1,819,077 square metres sq. m. of shopping complexes, 2,005,349 sq. m. of purpose-built offices and 6,901 industrial units in Malaysia. 37

48 The fixtures and furnishings of existing properties such as awnings and skylights also undergo periodic replacements due to wear and tear. The stock and incoming supply of residential units represent a potential market for acrylic products such as awnings, display cabinets, long baths, shower trays and wash basins. Meanwhile, the stock and incoming supply of commercial buildings and purpose built offices represent a potential market for acrylic-made visual merchandising point-of-sale displays and store fixtures, display cabinets, awnings and skylights. The stock and incoming supply of industrial units also require acrylic-made awnings and display cabinets. Table 3: Stock of buildings in Malaysia Commercial Year Residential (units) Shop units Shopping complexes (sq. m.) Purpose-built offices (sq. m.) Industrial units ,640, ,904 12,028,015 18,823,624 94, ,725, ,304 12,446,900 18,990,448 95, ,848, ,105 12,978,499 19,553,129 97, ,852, ,699 13,828,953 20,131, , ,945, ,601 14,638,039 20,748, ,140 CAGR 1.6% 3.0% 5.0% 2.5% 3.9% (Source: Valuation and Property Services Department, Malaysia) In general, both prices and transaction volumes of properties in the property market in Malaysia are anticipated to remain flat in 2017 and to recover gradually from 2018, due to factors that include, inter alia, the rising costs of living, stringent bank lending policies and negative property market sentiments. However, affordable residential properties prices at RM500,000 and below will continue to be in demand. This assists to continue to drive the demand for acrylic products. The softening of the economy and relatively poor business operating environment has also affected most property developments in the commercial, office and industrial property market segments. As a result, most property investors are more cautious in entering the property market due to uncertainties and strong headwinds on both the domestic and foreign fronts. Property owners and property managers, especially in the commercial property segment such as hotels, shopping complexes and restaurants tend to renovate their properties more frequently in order to keep up with changing property fashions and to draw more customers by creating comfortable, relaxed and inviting spaces with the right ambiance. More and more highways are being built to cater for the increasing pace of motorisation and as a result, sound barriers are installed for the comfort of the residents who stay nearby. All these applications also utilise acrylic sheets, among others. Both recreational boating and recreational vehicles are widely used for leisure activities in many overseas countries, such as the US, Australia and New Zealand. Acrylic sheets are utilised in boat cabin windows and windscreens, as well as in coach observation panels. As they are popular forms of leisure activities, the assembling of recreational boats and recreational vehicles are actively undertaken in those countries. At the moment, there are no cell cast acrylic sheet manufacturers in Malaysia that are capable of hard coating the acrylic sheets to be used in products such as awnings, skylights, signage and furniture. All these products require frequent cleaning and polishing so as to maintain their appearance, and hence, are susceptible to abrasions and scratches. The availability of hard coated acrylic sheets that are more resistant to abrasion and resistance would in turn, spur increased usage in the different application markets as customers tend to favour them. The global market size for cast acrylic sheets is projected to expand from USD1.36 billion in 2016 to USD2.61 billion in 2025, yielding a CAGR of 7.5%. Geographically, the Asia Pacific region, with its various dynamic economies and rapidly expanding industrial and commercial activities, is expected to continue to be the main market for acrylic sheets. A rising middle class in many countries in the region is anticipated to spur the demand for more consumer goods, in which visual merchandising point-of-sale displays and store fixtures are used to attract their attention by retailers. (Source: Extracted from the IMR Report, Infobusiness) 38

49 5.4 Overview and outlook of the property development industry in Malaysia The uncertainty enfolding the global political scene coupled with low domestic economic growth has taken its toll on the property market in Both volume and value were down by 11.5% and 3.0%, respectively, compared to The figures from Bank Negara Malaysia also indicated a similar tone. Bank Negara Malaysia s pre-emptive measures on the implementation of loan-to-value ratio of 70% effective from 3 November 2010 as well as the prudent and responsible lending guidelines issued on 18 November 2011 in the effort to curb speculation have shown its effect on the property market. The amount of loan applications for purchase of residential properties reduced further by 18.4% (2015: -10.0%) whilst the amount of loan approvals dwindled by 15.3% (2015: 14.6%). Similarly, loan applications and approvals for purchase of non-residential properties contracted by 12.1% and 14.3%, respectively. Market volume recorded 320,425 transactions worth RM billion in 2016, down by 11.5% and 3.0% in volume and value against The residential sub-sector continued to lead the overall market, with 63.4% contribution in volume and 45.1% in value. This was followed by agriculture (21.6%), commercial (7.4%), development land (5.9%) and industrial (1.8%). The shop sub-sector recorded 12,881 transactions (2015: 17,181) worth RM9.39 billion (2015: RM13.31 billion), dominating 54.2% of the commercial property transactions and 26.1% of the total value. Market activity reduced by 25.0% whilst value dropped by The discouraging performance by certain states contributed to the downtrend. The states of Selangor, Johor, Perak and Sarawak contributed more than 50.0% of the total shops market activity. (Source: Valuation and Property Services Department, Ministry of Finance Malaysia) 5.5 Overview and outlook of the property development industry in Selangor Selangor state s property market performance softened in 2016 as indicated by the moderation of market activity and the construction sector. There were 62,959 transactions recorded worth RM40.70 billion, down by 15.9% and 13.7% in volume and value, respectively (2015: 74,905 transactions worth RM47.15 billion). The residential sub-sector retained its lion s share of the market, contributing 77.6% of the total transactions, followed by the commercial (8.9%), agricultural (6.5%), development land (4.3%) and industrial (2.6%) sub-sectors. The residential sub-sector s market activity shrank in 2016 with 48,879 transactions worth RM21.93 billion, a decline of 15.5% and 11.8% in volume and value, respectively against Transactions of condominiums dominated 44.6% of the state s residential property transactions. The residential overhang situation was discouraging. There were 1,718 overhang units worth RM1.43 billion in 2016, up by 91.3% in volume and more than two-fold in value. Similarly, unsold units under construction increased by 41.3% to 12,451 units (2015: 8,811 units) whilst unsold units not yet constructed decreased by 54.5% to 340 units (2015: 747 units). The commercial sub-sector recorded 5,601 transactions with total value of RM5.98 billion, indicating a significant decline of 25.0% in volume and 13.2% in value, respectively (2015: 7,472 transactions worth RM6.89 billion). The shop sub-sector recorded 2,100 transactions worth RM2.52 billion in Compared with 2015, the market activity reduced by 27.8% in volume and 27.3% in value respectively. 39

50 The shop overhang also saw an increasing number in the review period. There were 343 overhang units worth RM million, up by 98.3% in volume and almost three-fold in value against 2015 (173 units worth RM million). Similarly, unsold units under construction decreased to 444 units (2015: 587 units) whilst unsold units not yet constructed increased to 149 units (2015: 70 units). (Source: Valuation and Property Services Department, Ministry of Finance Malaysia) 5.6 Prospects of our Group s cast acrylic business Our Group is principally involved in the Existing Business, and is focused on creating high quality cast acrylic sheets that meet international standards of compliance. Our Group s manufacturing facility in Klang, Selangor has 2 production lines manufacturing on average 600 MT worth of acrylic sheets a month. Our Group s strengths reside in the following areas: (a) R&D Our Group invests heavily in the R&D process. Capital expenditure incurred for R&D purposes includes the setting up of a pilot plant which serves our R&D initiatives into the polymerisation process with various types of additives which could be analysed under different process conditions, equipment to study the thermoforming performance of acrylic sheets and other sophisticated laboratory equipment. All these have benefited our Group in maintaining and improving the quality of our products. Thus, the strength of our Company lies in our products bearing the A-Cast brand and technology. Our Group uses low temperature process at the pre-polymerisation stage which could control the consistency of molecule weight of the cast acrylic which gives our Group an advantage among our competitors that use a high temperature process. This technology has helped our Group to meet international standards as set out below. (b) Certification of compliance Our products are certified for compliance with the European Union s EN263 standard for sanitary grade PMMA and Japan s JIS, International Organization for Standardization (ISO) and ASTM International standards for general purpose grade PMMA which have helped our Group to penetrate the global market. (c) Production planning and control Our Group employs proper production planning and control to ensure optimum utilisation of production capacity and resources. Our Group s production lines are semi-automated and are running at close to 100% capacity. (d) Global presence Our Group supplies our products domestically as well as to international markets such as Japan, Australia, Brazil, the United Kingdom, India, Middle East, Europe and South America. The breakdown of revenue between domestic and foreign markets for the latest audited FYE 31 December 2016 was approximately 26% and 74%, respectively. 40

51 Our Group intends to achieve further growth by getting more production lines up through the setting up of the coating plant and securing more high-net-worth customers in global markets through R&D efforts by developing new and innovative products such as the cell cast acrylic sheet. By hard coating acrylic sheets, our Group will be able to produce acrylic sheets that are more resistant to abrasion and scratching, spurring increased usage of hard coated acrylic sheets in different application markets (such as advertising and visual communications, architectural and building construction, transportation and furniture manufacturing) resulting in higher revenue and improved gross profit margin for our Group. Our Group also intends to intensify promotional efforts both locally and overseas by participating in local and overseas trade fairs and advertising in design and architecture magazines to improve market awareness and enhance the presence of our Group s products. Premised on the above and taking into account of the outlook of the acrylic sheet industry (as set out in Section 5.3 of Part A of this Circular) moving forward, our Board is of the view that the future prospects of our Group are expected to be positive. (Source: Our management) 5.7 Prospects of our Group s property development business As disclosed in Section 4.2 of Part A of this Circular, the Land has good accessibility and is strategically located as the surrounding developments are a mixture of industrial, commercial and residential properties, consisting mostly landed properties, with many newly completed and ongoing high rise developments. Thus, although Selangor s property market activity moderated in 2016 compared to 2015 as mentioned in Section 5.4 of Part A of this Circular, our Board is of the view that the Proposed Acquisition and Proposed Diversification will augur well for our Company, despite the softening property market due to the following reasons: (a) (b) the prospects of the Proposed Development is favourable taking into consideration the growth prospects of the Land and the estimated gross development profit (as set out in Sections and 4.2 of this Circular) to be earned from the Proposed Development. Our Board believes that the strategic location of the Proposed Development (which is fronting two main roads) will enable our Group to secure decent take-up rates upon launching of the Proposed Development; and additional revenue and profit streams to our Group via the Proposed Development and any new projects to be secured in the future. Our Board is of the opinion that our Group will potentially be able to purchase development lands at relatively low prices for new projects to be secured in the future. As mentioned in Section 5.3 of Part A of this Circular, the property market is expected to recover gradually in Upon the rebounding of the property market, our Board is of the view that our Group will be well positioned with the completion of the Proposed Development and the securing of any new projects in the future. The Proposed Acquisition and the Proposed Development serves as an entry point for our Group into property development. The Proposed Diversification is intended to provide a new source of revenue and profits and is expected to offer growth prospects for our Group. As mentioned in Section of Part A of this Circular, the future plans of HRLSB include the development of the Proposed Development which will require approximately 2 years from its commencement. The Proposed Development and any other future projects to be undertaken by HRLSB will be funded through a combination of internally generated funds of our enlarged Group (i.e., after the Proposed Acquisition), progressive collections from sales billings, bank borrowings and/or fund raising exercise (if necessary) to be undertaken, the proportion of which has yet to be determined at this juncture. Moving forward, our Group intends to seek further opportunities in property development. At the same time, our Group will leverage on the network of Gan Eng Tien to secure more property development projects. In this regard, our Group is currently in the midst of exploring, discussing and negotiating with other parties to undertake other property development projects but none has been determined as at this juncture. 41

52 With the positive outlook of the Malaysian economy and the strategic location of the Land, our Board is confident that our Group s venture into property development (via the Proposed Acquisition and Proposed Development) will enable our Group to diversify its revenue and earnings streams to enhance our Group s profitability and shareholders value while reducing our Group s dependency on its Existing Business. (Source: Our management) 6. RISK FACTORS The risk factors, which may not be exhaustive, relating to the Proposed Acquisition and Proposed Diversification include the following: 6.1 Acquisition risk The Proposed Acquisition is being undertaken for our Group to venture into the property development business via the Proposed Development. However, there is no guarantee that the anticipated benefits from the Proposed Acquisition will be realised, or that our Group will be able to generate sufficient returns from the Proposed Development to offset the associated costs of investment. As such, there is no assurance that the Proposed Acquisition will enhance our Group s financial performance, or that the duration required for our Company to recoup our investment will be as anticipated. Nevertheless, our Board has exercised due care in considering the potential risks and benefits associated with the Proposed Acquisition and believes that the Proposed Acquisition will be value-accretive to our enlarged Group. 6.2 Business risk The Proposed Acquisition and Proposed Diversification are subject to risks inherent in the property development industry. Such risks may include adverse changes in real estate market prices, changes in demand for types of residential and commercial properties, competition from other property developers, delays in completion of projects, performance of third-party subcontractors, shortages in labour and raw materials and fluctuations in the costs thereof. Any occurrence of these events may have an adverse material effect on our enlarged Group s performance. Our Group seeks to limit these risks through prudent management policies, efficient human resource management, effective cost control policies, careful planning as well as close monitoring of the progress of any future development projects. 6.3 Financing risk As disclosed in Sections and of Part A of this Circular, the Proposed Development is expected to be funded through a combination of internally generated funds of our Group, progressive collections from sales billings, bank borrowings and/or fund raising exercise (if necessary) and the Cash Consideration for the Proposed Acquisition will be funded through internally generated funds. If bank borrowings are secured to fund the development costs, the gearing level of our Group will increase and any adverse movement in interest rates may have a significant impact on project costs which could adversely affect our Group s financial performance in the future. Our Group will actively review its debt portfolio taking into consideration the level and nature of borrowings and seek to adopt appropriate cost effective financing options. Furthermore, the management of our Company will continuously monitor and adjust its development and marketing strategies in response to changes in economic conditions and market demand and will ensure that the Proposed Development is carried out with due care and proper judgement. 42

53 As at the LPD, the management of our Company has made the necessary its internal assessment to ensure that our Group will have sufficient funds to settle the Cash Consideration portion of the Proposed Acquisition in the manner set out in the SSA. Nevertheless, the management of our Company will continuously monitor and assess its cash flow requirements to ensure that there will be sufficient internally generated funds for the said purpose. 6.4 Competition risk Our Group s property development business may face competition from existing competitors and/or new entrants operating in the same business. Nevertheless, our Group will take proactive measures to successfully venture into the property development industry by providing quality services and competitive pricing and cautiously seeking other new opportunities in the property development industry. 6.5 Dependency on key management personnel Our Group s involvement in property development depends largely on the abilities, skills, experience and competency of Gan Eng Tien and other key management personnel (to be appointed in due course). The loss of Gan Eng Tien or any of the relevant key management personnel without suitable and timely replacement, or the inability of our Group to attract and retain other qualified personnel, may adversely affect our Group s property development operations and consequently, its revenue and profitability. Our Group will therefore strive to retain its key personnel. There is no management agreement entered into between the key management personnel and our Group. Instead, our Group will provide competitive remuneration packages and performance based rewards. In order to reduce dependency on any key personnel, our Group will also attract qualified and experienced employees via our Group s business network and groom junior employees to complement the property development and/or management team. This will in turn help to ensure continuity and competency of our Group s property development and/or management team. 6.6 Non-completion of the SSA The Proposed Acquisition is subject to the fulfilment of the respective obligations of the contracting parties pursuant to the terms and conditions as stipulated in the SSA. In the event any of the Conditions Precedent is not fulfilled or waived, the Proposed Acquisition may be delayed or terminated, and the potential benefits arising thereon may not materialised. Notwithstanding the above, our Group shall use its best endeavour to ensure that every effort is made to comply with the terms of the SSA so that the Proposed Acquisition shall be completed in accordance with the terms and conditions of the SSA. 6.7 Property overhang Property overhang is inherent in any property development project and is, among others, caused by oversupply and low demand for properties, other factors contributing to property overhang include economic downturns and unfavourable financial conditions. Any occurrence of property overhang at the time of completion of the Proposed Development will affect the sale of our Group s properties, which in turn may affect our Group s cash flow position and overall financial performance as unsold properties may remain illiquid even after completion of the Proposed Development. In the event our Group is required to sell its unsold properties urgently, such illiquidity may have a negative effect on the selling prices of unsold units. There can be no assurance that there will be favourable take-up rates for the properties to be developed on the Land. However, our Group will continue to monitor market conditions of the property development industry as well as conduct feasibilities studies/internal assessments prior to finalisation and construction of the properties to be developed. 43

54 6.8 Economic, political and regulatory risks Adverse developments in political, economic, regulatory and social conditions could materially affect our Group s financial performance and business prospects. Other political uncertainties that could unfavourably affect our Group include changes in political leadership, economic downturn, financial crisis expropriation, nationalisation, re-negotiation or nullification of existing contracts, changes in interest rates and methods of taxation. Much of the above changes are beyond our Group s control. Our Group will continue to review its business development strategies in response to these changes. [The rest of this page has been intentionally left blank] 44

55 7. EFFECTS OF THE PROPOSALS The Proposed Variation, Proposed Diversification and Proposed Amendments will not have any effect on the issued share capital and number of issued Shares of our Company, NA, gearing and the substantial shareholders shareholdings in our Company Issued share capital and number of issued Shares The pro forma effects of the Proposed Rights Issue of ICPS with Warrants and Proposed Acquisition on our Company s issued share capital and number of issued Shares are as follows: Issued share capital and number of issued Shares of Asia Poly Minimum Scenario Maximum Scenario No. of Asia Poly Shares RM No. of ICPS RM No. of Asia Poly Shares RM No. of ICPS RM As at the LPD 333,559,880 35,175, ,559,880 35,175, ,463,973 5,646, Assuming full exercise of the outstanding Warrants 2015/2020 To be issued pursuant to the Proposed Rights Issue of ICPS with Warrants To be issued pursuant to the Proposed Acquisition Assuming to the full exercise of the outstanding Warrants 2015/2020 and Adjustment warrants (3) 333,559,880 35,175, ,023,853 40,821, ,000,000 5,000, ,023,853 19,501, ,559,880 35,175, ,000,000 5,000, ,023,853 40,821, ,023,853 19,501,193 42,027,194 6,800, ,027,194 6,800, ,587,074 41,975, ,000,000 5,000, ,051,047 47,621, ,023,853 19,501,193 59,422,658 5,942, ,009,732 47,917, ,000,000 5,000, ,051,047 47,621, ,023,853 19,501,193 Assuming full exercise of Warrants 25,000,000 2,500, ,505,963 9,750, ,009,732 50,417, ,000,000 5,000, ,557,010 57,372, ,023,853 19,501,193 Assuming full conversion of ICPS 50,000,000 (1) 5,000,000 (100,000,000) (5,000,000) 390,023,853 (2) 39,002,385 (390,023,853) (19,501,193) Enlarged issued share capital and number of issued Shares 510,009,732 55,417, ,580,863 96,374, Notes: (1) Assuming all ICPS are converted into Asia Poly Shares based on the conversion ratio of 2 ICPS to be converted into 1 Asia Poly Share. (2) Assuming all ICPS are converted into Asia Poly Shares based on the conversion ratio of 1 ICPS to be converted into 1 Asia Poly Share with additional cash payment of RM0.05. (3) Assuming the total number of outstanding Warrants 2015/2020 is adjusted from 56,463,973 to 59,422,658 following the issuance of 2,958,685 Adjustment Warrants resulting from the adjustments to be made pursuant to the Proposed Rights Issue of ICPS with Warrants. 45

56 7.2 NA and gearing The pro forma effects of the Proposed Rights Issue of ICPS with Warrants and Proposed Acquisition on the NA and gearing of our Group based on the audited consolidated financial statements of our Company as at 31 December 2016 are as follows: Minimum Scenario (Audited) (I) (II) (III) (IV) (V) (VI) As at 31 December 2016 (RM) After subsequent events up to the LPD (1) (RM) After (I) and the Proposed Rights Issue of ICPS with Warrants (RM) After (II) and the Proposed Acquisition (RM) After (III) and assuming full exercise of the Warrants 2015/2020 and Adjustment Warrants (4) (RM) After (IV) and assuming full exercise of the Warrants (RM) After (V) and assuming full conversion of the ICPS (5) (RM) Share capital 30,319,088 35,175,128 35,175,128 41,975,128 47,917,394 50,417,394 55,417,394 Share premium 3,309,975 3,209,975 2,309,975 (2) 2,309,975 2,309,975 2,309,975 2,309,975 Warrant reserve 8,273,163 8,265,843 9,878,343 (3) 9,878,343 1,612, Other reserve (8,273,163) (8,265,843) (9,878,343) (3) (9,878,343) (1,612,500) - - ICPS - - 5,000,000 5,000,000 5,000,000 5,000,000 - Revaluation reserve 14,569,000 14,569,000 14,569,000 14,569,000 14,569,000 14,569,000 14,569,000 Retained earnings 11,300,354 11,300,354 11,300,354 11,302,397 (6) 11,302,397 11,302,397 11,302,397 Shareholders funds / NA 59,498,417 64,254,457 68,354,457 75,156,500 81,098,766 83,598,766 83,598,766 No. of Asia Poly Shares in issue 303,190, ,559, ,559, ,587, ,009, ,009, ,009,732 NA per Asia Poly Share (RM) Total borrowings (RM) 3,078,778 3,078,778 3,078,778 3,078,778 3,078,778 3,078,778 3,078,778 Gearing (times) Notes: (1) Taking into consideration the exercise of 50,000 Warrants 2015/2020 at an exercise price of RM0.10 each into 50,000 new Asia Poly Shares, the Private Placement and after deducting expenses of RM100,000 for the Private Placement. (2) After deducting the estimated expenses of RM900,000 in relation to the Proposals. (3) Arising from the issuance of Warrants pursuant to the Proposed Rights Issue of ICPS with Warrants. For illustrative purposes, the Warrants are assumed to have a fair value of RM each based on the Black-Scholes Options Pricing Model. 46

57 (4) Assuming full exercise of 56,463,973 Warrants 2015/2020 and 2,958,685 Adjustment Warrants at the exercise price of RM0.10 each. (5) Assuming all ICPS are converted into Asia Poly Shares based on the conversion ratio of 2 ICPS into 1 Asia Poly Share. (6) Arising from the Proposed Acquisition (which is at a purchase consideration below the fair value of HRLSB s NA). Maximum Scenario (Audited) (I) (II) (III) (IV) (V) (VI) As at 31 December 2016 (RM) After subsequent events up to the LPD (1) (RM) After (I) and assuming full exercise of the Warrants 2015/2020 (2) (RM) After (II) and the Proposed Rights Issue of ICPS with Warrants (RM) After (III) and the Proposed Acquisition (RM) After (IV) and assuming full exercise of the Warrants (RM) After (V) and assuming full conversion of the ICPS (5) (RM) Share capital 30,319,088 35,175,128 40,821,525 40,821,525 47,621,525 57,372,121 96,374,506 Share premium 3,309,975 3,209,975 3,209,975 2,309,975 (3) 2,309,975 2,309,975 2,309,975 Warrant reserve 8,273,163 8,265,843-6,269,633 (4) 6,269, Other reserve (8,273,163) (8,265,843) - (6,269,633) (4) (6,269,633) - - ICPS ,501,193 19,501,193 19,501,193 - Revaluation reserve 14,569,000 14,569,000 14,569,000 14,569,000 14,569,000 14,569,000 14,569,000 Retained earnings 11,300,354 11,300,354 11,300,354 11,300,354 11,302,397 (6) 11,302,397 11,302,397 Shareholders funds / NA 59,498,417 64,254,457 69,900,854 88,502,047 95,304, ,054, ,555,878 No. of Asia Poly Shares in issue 303,190, ,559, ,023, ,023, ,051, ,557, ,580,863 NA per Asia Poly Share (RM) Total borrowings (RM) 3,078,778 3,078,778 3,078,778 78,778 78,778 78,778 78,778 Gearing (times) Neg Neg Neg Neg Notes: Neg Negligible (1) Taking into consideration the exercise of 50,000 Warrants 2015/2020 at an exercise price of RM0.10 each into 50,000 new Asia Poly Shares, the Private Placement and after deducting expenses of RM100,000 for the Private Placement. (2) Assuming full exercise of 56,463,973 Warrants 2015/2020 at the exercise price of RM0.10 each. (3) After deducting the estimated expenses of RM900,000 in relation to the Proposals. (4) Arising from the issuance of Warrants pursuant to the Proposed Rights Issue of ICPS with Warrants. For illustrative purposes, the Warrants are assumed to have a fair value of RM each based on the Black-Scholes Options Pricing Model. 47

58 (5) Assuming all ICPS are converted into Asia Poly Shares based on the conversion ratio of 1 ICPS to be converted into 1 Asia Poly Share with additional cash payment of RM0.05. (6) Arising from the Proposed Acquisition (which is at a purchase consideration below the fair value of HRLSB s NA). 7.3 Earnings and EPS The Proposed Rights Issue of ICPS with Warrants is not expected to have an immediate material effect on the consolidated earnings and EPS of our Group for the FYE 31 December 2017 as the Proposed Rights Issue of ICPS with Warrants is only expected to be completed in the 4 th quarter of 2017 whilst the proceeds to be raised are expected to be utilised within 18 months from the date of the listing of the ICPS. Nevertheless, the Proposed Rights Issue of ICPS with Warrants is expected to contribute positively to the future earnings of our Group when the benefits of the utilisation of proceeds is realised. The EPS of our Group will be correspondingly diluted as a result of the increase in the number of Asia Poly Shares in issue arising from the conversion of the ICPS and/or the exercise of the Warrants in the future. The Proposed Acquisition is not expected to have an immediate material effect on the consolidated earnings and EPS of our Group for the FYE 31 December 2017 as the Proposed Acquisition is only expected to be completed in the 3 rd quarter of Nevertheless, the Proposed Acquisition is expected to contribute positively to the future earnings of our Group when the benefits are realised from undertaking the Proposed Development. The EPS of our Group will be correspondingly diluted as a result of the increase in the number of Asia Poly Shares in issue arising from the issuance of the Consideration shares. The pro forma effects of the Proposed Acquisition on our Group s earnings and EPS assuming that the Proposed Acquisition had been effected at the beginning of the FYE 31 December 2016 and the audited lost after tax of HRLSB of RM397,786 for the FYE 31 December 2016 as well as the effect of the negative goodwill of RM2,043 arising from the Proposed Acquisition (which is at a purchase consideration below the fair value of HRLSB s NA), would form part of the profit attributable to equity holders of our Company and the issuance of the Consideration Shares, the effect on the earnings per Asia Poly Share shall be as follows: [The rest of this page has been intentionally left blank] 48

59 Minimum Scenario Profit / Pro-forma profit of our Group for the FYE 31 December 2016 (assuming the Proposed Acquisition had been completed on 1 January 2016) (RM 000) (Audited) (I) (II) (III) As at 31 December 2016 After subsequent events up to the LPD (1) After (I) and the Proposed Rights Issue of ICPS with Warrants After (II) and the Proposed Acquisition (3) (A) 4,062 4,062 4,062 3,666 No. of Asia Poly Shares in issue ( 000) (B) 303, , , ,587 No. of Asia Poly Shares in issue assuming exercise of Warrants 2015/2020, Adjustment Warrants, Warrants and conversion of ICPS (2) (C) 359,705^ 390, , ,010 Earnings per Asia Poly Share (sen) Basic (A) / (B) 1.45* Diluted (A) / (C) 1.31* Notes: * Based on the audited financial statements of our Group for the FYE 31 December The basic EPS was calculated by dividing Asia Poly Group s PAT for the FYE 31 December 2016 by the weighted average of number of Shares in issue during the financial year of 279,434,061 Shares. The diluted EPS was calculated by dividing our Group s PAT for the FYE 31 December 2016 by the weighted average number of Shares that would have been in issue adjusted for the dilutive effects of the Warrants 2015/2020 of 309,611,425 Shares. ^ Based on 303,190,880 Asia Poly Shares in issue and 56,513,973 Warrants 2015/2020 as at 31 December (1) Taking into consideration the exercise of 50,000 Warrants 2015/2020 into 50,000 new Asia Poly Shares and the Private Placement. (2) Taking into consideration the effect of dilution arising from the exercise of 56,463,973 Warrants 2015/2020, 2,958,685 Adjustment Warrants, 25,000,000 Warrants and conversion of 100,000,000 ICPS at the conversion ratio of 2 ICPS to be converted into 1 Asia Poly Share, where applicable. (3) Taking into consideration HRLSB s net loss of RM0.398 million for the FYE 31 December 2016 and the effect of negative goodwill of RM2,043 arising from the Proposed Acquisition (which is at a purchase consideration below the fair value of HRLSB s NA). 49

60 Maximum Scenario Profit / Pro-forma profit of our Group for the FYE 31 December 2016 (assuming the Proposed Acquisition had been completed on 1 January 2016) (RM 000) (Audited) (I) (II) (III) (IV) As at 31 December 2016 (RM) After subsequent events up to the LPD (1) (RM) After (I) and assuming full exercise of the Warrants 2015/2020 (2) (RM) After (II) and the Proposed Rights Issue of ICPS with Warrants (RM) After (III) and the Proposed Acquisition (RM) (4) (A) 4,062 4,062 4,062 4,062 3,666 No. of Asia Poly Shares in issue ( 000) (B) 303, , , , ,051 No. of Asia Poly Shares in issue assuming exercise of Warrants 2015/2020, Warrants and conversion of ICPS (3) (C) 359,705^ 390, , , ,581 Earnings per Asia Poly Share (sen) Basic (A) / (B) 1.45* Diluted (A) / (C) 1.31* Notes: * Based on the audited financial statements of our Group for the FYE 31 December The basic EPS was calculated by dividing Asia Poly Group s PAT for the FYE 31 December 2016 by the weighted average of number of Shares in issue during the financial year of 279,434,061 Shares. The diluted EPS was calculated by dividing our Group s PAT for the FYE 31 December 2016 by the weighted average number of Shares that would have been in issue adjusted for the dilutive effects of the Warrants 2015/2020 of 309,611,425 Shares. ^ Based on 303,190,880 Asia Poly Shares in issue and 56,513,973 Warrants 2015/2020 as at 31 December (1) Taking into consideration the exercise of 50,000 Warrants 2015/2020 into 50,000 new Asia Poly Shares and the Private Placement. (2) Taking into consideration the effect of dilution arising from the exercise of 56,463,973 Warrants 2015/2020. (3) Taking into consideration the effect of dilution arising from the exercise of 97,505,963 Warrants and the conversion of 390,023,853 ICPS at the conversion ratio of 1 ICPS to be converted into 1 Asia Poly Share with additional cash payment of RM0.05, where applicable. 50

61 (4) Taking into consideration HRLSB s net loss of RM0.398 million for the FYE 31 December 2016 and the effect of negative goodwill of RM2,043 arising from the Proposed Acquisition (which is at a purchase consideration below the fair value of HRLSB s NA). The Proposed Variation is not expected to have an immediate material effect on the consolidated earnings and EPS of our Group for the FYE 31 December However, the Proposed Variation is expected to contribute positively to the consolidated earnings and EPS of our Group as and when the benefits of the revised utilisation of the proceeds are realised. The Proposed Diversification is not expected to have an immediate material effect on the consolidated earnings and EPS of our Group for the FYE 31 December 2017 as the construction of the Proposed Development is only expected to commence by the 4 th quarter of However, the Proposed Diversification is expected to contribute positively to the consolidated earnings and EPS of our Group as and when the revenues and profits from the Proposed Development and any future developments are realised. The Proposed Amendments will not have any effect on the consolidated earnings and EPS of our Group for the FYE 31 December [The rest of this page has been intentionally left blank] 51

62 7.4 Substantial shareholders shareholdings The pro forma effects of the Proposed Rights Issue of ICPS with Warrants and Proposed Acquisition on the shareholdings of the substantial shareholders of our Company based on its Record of Depositors as at the LPD are set out in the tables below: Notwithstanding the above, the ICPS and Warrants will not have any effect on the substantial shareholders shareholdings until and unless the ICPS holders and/or Warrant holders convert their ICPS and/or exercise their Warrants into new Asia Poly Shares. Minimum Scenario As at the LPD After the Proposed Acquisition Direct Indirect Direct Indirect Direct Indirect No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % Name DYBL 48,802, ,424, ,455, YBH 70, ,272, ,272, YBT ,202, ,202, Tan Soon Hui 18,072, ,072, ,072, Liaw Kong Wah 11,580, ,613,000 (1) ,580, ,613,000 (1) ,580, ,625,407 (1) 1.29 Underwriters (I) No. of Asia Poly Shares % (II) After (I) and assuming full exercise of Warrants 2015/2020 and Adjustment Warrants No. of Asia Poly Shares % No. of Asia Poly Shares % (III) After (II) and assuming full exercise of the Warrants (IV) After (III) and assuming full conversion of the ICPS (2) Direct Indirect Direct Indirect No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % Name DYBL 94,655, ,057, YBH 4,272, ,272, YBT 4,202, ,202, Tan Soon Hui 18,072, ,072, Liaw Kong Wah 11,580, ,625,407 (1) ,580, ,625,407 (1) 1.10 Underwriters 12,837, ,512,

63 Notes: (1) Deemed interest by virtue of his interest through his sons, Liaw Jing Xian and Liaw Jing Quan as well as his daughter, Liaw Jei Mei. (2) The issuance of the ICPS will not have an effect on the shareholdings of the shareholders. Assuming all ICPS are converted into Asia Poly Shares based on the conversion ratio of 2 ICPS into 1 Asia Poly Share. Maximum Scenario (I) After full exercise of Warrants 2015/2020 (II) After (I) and the Proposed Acquisition As at the LPD Direct Indirect Direct Indirect Direct Indirect No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % Name DYBL 48,802, ,832, ,453, YBH 70, , ,272, YBT ,202, Tan Soon Hui 18,072, ,072, ,072, Liaw Kong Wah 11,580, ,613,000 (1) ,580, ,574,999 (1) ,580, ,574,999 (1) 1.29 (III) After (II) and assuming full exercise of the Warrants (IV) After (III) and assuming full conversion of the ICPS (2) Direct Indirect Direct Indirect No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % No. of Asia Poly Shares % Name DYBL 94,661, ,493, YBH 4,290, ,360, YBT 4,202, ,202, Tan Soon Hui 22,590, ,663, Liaw Kong Wah 14,475, ,968,749 (1) ,055, ,543,748 (1)

64 Notes: (1) Deemed interest by virtue of his interest through his sons, Liaw Jing Xian and Liaw Jing Quan as well as his daughter, Liaw Jei Mei. (2) The issuance of the ICPS will not have an effect on the shareholdings of the shareholders. Assuming all ICPS are converted into Asia Poly Shares based on the conversion ratio of 1 ICPS to be converted into 1 Asia Poly Share with additional cash payment of RM Convertible securities Our Company has granted 20,040,000 SIS options as at the LPD. The SIS options granted will only be exercised after the completion of the Proposed Rights Issue of ICPS with Warrants. Our Company envisages that the remaining SIS options will only be granted after the completion of the Proposals. As at the LPD, save for the outstanding Warrants 2015/2020 which are exercisable into Asia Poly Shares, our Company does not have any other existing convertible securities. Consequent to the Proposed Rights Issue of ICPS with Warrants, the number of Warrants 2015/2020 in issue will be adjusted. There will be no adjustment to the exercise price of the Warrants 2015/2020 in issue consequent to the Proposed Rights Issue of ICPS with Warrants. The rights and obligations of the holders of the outstanding Warrants 2015/2020 shall remain unchanged, save for the adjustment to the number of outstanding Warrants 2015/2020. The notice will be issued to the Warrants holders to inform them of such adjustments at a later date. 8. HISTORICAL SHARE PRICES The monthly high and low transacted prices of Asia Poly Shares for the past 12 months from July 2016 to June 2017 are as follows: High (RM) Low (RM) 2016 July August September October November December January February March April May June Last transacted market price on 24 January 2017 (being the last trading date prior to the announcement dated 25 January 2017) was RM0.16 per Asia Poly Share. Last transacted market price on the LPD was RM0.195 per Asia Poly Share. (Source: Bloomberg Finance L.P.) 54

65 9. APPROVALS REQUIRED The Proposals are subject to the following approvals being obtained: (i) Bursa Securities for the following: (a) (b) (c) admission of the ICPS and Warrants to the Official List and the listing of and quotation for up to 390,023,853 ICPS, up to 97,505,963 Warrants and up to 8,244,956* Adjustment Warrants to be issued pursuant to the Proposed Rights Issue of ICPS with Warrants; listing of and quotation for up 390,023,853 new Asia Poly Shares, up to 97,505,963 new Asia Poly Shares and up to 8,244,956* new Asia Poly Shares to be issued pursuant to the conversion of the ICPS, exercise of the Warrants and Adjustment Warrants, respectively); and listing of and quotation for 42,027,194 Consideration Shares to be issued pursuant to the Proposed Acquisition, Note: * The number of Adjustment Warrants to be issued has decreased to up to 8,237,661 due to the exercise of 50,000 Warrants 2015/2020 as announced on 25 May on the ACE Market of Bursa Securities; The approval of Bursa Securities on the above pursuant to the Proposed Rights Issue of ICPS with Warrants and Proposed Acquisition which was obtained vide its letter dated 6 July 2017 is subject to the following conditions: (a) (b) (c) (d) Conditions imposed Our Company and TA Securities must fully comply with the relevant provisions under the Listing Requirements pertaining to the implementation of the Proposed Rights Issue of ICPS with Warrants and Proposed Acquisition; Our Company and TA Securities to inform Bursa Securities upon completion of the Proposed Rights Issue of ICPS with Warrants and the Proposed Acquisition; Our Company to furnish Bursa Securities with a written confirmation of our compliance with the terms and conditions of Bursa Securities approval once the Proposed Rights Issue of ICPS with Warrants and Proposed Acquisition are completed; and Our Company is required to furnish Bursa Securities on a quarterly basis a summary of the total number of shares listed pursuant to the conversion of ICPS and exercise of Warrants as at the end of each quarter together with a detailed computation of listing fees payable. Status of compliance To be complied. To be complied. To be complied. To be complied. (ii) (iii) our shareholders at our forthcoming EGM; and any other relevant authorities/persons, if required. 55

66 10. CORPORATE EXERCISES ANNOUNCED BUT PENDING COMPLETION Save for the Proposals, our Board is not aware of any other outstanding corporate proposal which has been announced by us but is pending implementation or completion prior to the printing of this Circular. 11. INTER-CONDITIONALITY OF THE PROPOSALS The Proposed Rights Issue of ICPS with Warrants and Proposed Amendments are inter-conditional with each other. The Proposed Acquisition and Proposed Diversification are inter-conditional with each other. The Proposed Rights Issue of ICPS with Warrants, Proposed Acquisition and Proposed Variation are not inter-conditional with each other. The Proposed Rights Issue of ICPS with Warrants, Proposed Variation and Proposed Diversification are not inter-conditional with each other. The Proposed Variation is not inter-conditional or conditional upon any of the other proposals. Save for the above, the Proposals are not conditional upon any other corporate proposal undertaken or to be undertaken by our Company. 12. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM As at the LPD, save for DYBL for the Proposed Acquisition, none of the Directors, major shareholders and/or persons connected with them, as defined in the Listing Requirements, have any interest, direct or indirect, in the Proposals. Direct No. of Asia Poly Shares % As at the LPD Indirect No. of Asia Poly Shares % Name Interested Director and major shareholder for the Proposed Acquisition: DYBL 48,802, Persons connected to DYBL for the Proposed Acquisition: YBH 70, YBT The Considerations Shares will be issued to DYBL, YBH and YBT whereby DYBL, the Executive Chairman and major shareholder of our Company is also a director and the controlling shareholder of HRLSB. In view that the Proposed Acquisition and Proposed Diversification are inter-conditional with each other, DYBL is deemed interested in the Proposed Acquisition and Proposed Diversification and he will abstain and will also undertake to ensure that persons connected with him, if any, will abstain from voting, in respect of their direct and indirect shareholdings in our Company, on the resolution to approve the Proposed Acquisition and Proposed Diversification at the EGM to be convened. In addition, DYBL has abstained and will continue to abstain from all deliberations and votings at Board meetings in relation to the Proposed Acquisition and Proposed Diversification. 56

67 Save for DYBL, none of the other Directors and/or major shareholders of our Company and/or persons connected with them have any interest, direct or indirect, in the Proposals, save for their respective entitlements as shareholders of our Company under the Proposed Rights Issue of ICPS with Warrants, for which all existing shareholders of our Company are entitled to, including the right to apply for additional ICPS with Warrants under the excess application. 13. TRANSACTION WITH THE SAME RELATED PARTY With the exception of the Proposed Acquisition, there are no other transactions with the same related party (i.e., DYBL) and/or persons connected to him for the 12 months prior to the date of this Circular. 14. INDEPENDENT ADVISER In view of the interest of DYBL, being the Interested Person as set out in Section 12 of Part A of this Circular, the Proposed Acquisition is a related party transaction pursuant to Rule of the Listing Requirements. Accordingly, Inter-Pacific Securities has been appointed to act as the Independent Adviser to: (i) (ii) (iii) advise whether the Proposed Acquisition is fair and reasonable insofar as our non-interested shareholders are concerned; advise whether the Proposed Acquisition is to the detriment of our minority shareholders; and advise our non-interested shareholders on whether they should vote in favour of the Proposed Acquisition. The IAL containing Inter-Pacific Securities evaluations and recommendations on the Proposed Acquisition is enclosed in Part B of this Circular. 15. DIRECTORS STATEMENT AND RECOMMENDATION Our Board (save for DYBL being the Interested Person for the Proposed Acquisition and Proposed Diversification), after having considered all relevant aspects of the Proposals including but not limited to the rationale and effects of the Proposals, is of the opinion that the Proposals are in the best interests of our Company and accordingly recommend you to vote IN FAVOUR of the resolutions in respect of the Proposals to be tabled at our forthcoming EGM. 16. AUDIT COMMITTEE S STATEMENT The Audit Committee of our Company, after having considered the advice of the Independent Adviser and all relevant aspects of the Proposed Acquisition based on information currently available, including but not limited to the rationale for and benefits of the Proposed Acquisition, the basis of and justification for the Purchase Consideration, market value of the Land, the salient terms of the SSA, risk factors and mitigating measures, and the effects of the Proposed Acquisition, is of the view that the Proposed Acquisition is: (i) (ii) (iii) in the best interest of our Company; fair, reasonable and on normal commercial terms; and not detrimental to the interest of the non-interested shareholders of our Company. 57

68 17. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to the approvals of the relevant authorities being obtained, our Board expects the Proposals to be completed by the 4 th quarter of Tentative date Events 25 August 2017 EGM Mid September 2017 Mid September 2017 End September 2017 Mid October 2017 End October 2017 Books closure date for the Proposed Rights Issue of ICPS with Warrants Despatch of abridged prospectus, notice of provisional allotment and rights subscription form Closing date of acceptance of the ICPS and applications for excess ICPS pursuant to the Proposed Rights Issue of ICPS with Warrants Listing of and quotation for the ICPS and/or Warrants and/or Adjustment Warrants/ Completion of the Proposed Rights Issue of ICPS with Warrants Listing of and quotation for the Consideration Shares/ Completion of the Proposed Acquisition 18. EGM Our EGM, the notice of which is set out in this Circular, will be held at Conference Room of Asia Poly Industrial Sdn Bhd, Lot 758, Jalan Haji Sirat, Mukim Kapar, Klang, Selangor Darul Ehsan on Friday, 25 August 2017 at p.m. or any adjournment thereof, for the purpose of considering and if thought fit, passing with or without modifications, the resolutions to give effect to the Proposals. If you are unable to attend and vote in person at our EGM, you should complete and return the enclosed Proxy Form in accordance with the instruction provided thereon so as to arrive at the Registered Office of our Company at 308, Block A (3 rd Floor), Kelana Business Centre, 97, Jalan SS 7/2, Kelana Jaya, Petaling Jaya, Selangor Darul Ehsan not later than 48 hours before the time set for holding the EGM or any adjournment thereof. The lodging of the Proxy Form will not preclude you from attending and voting in person at our EGM should you subsequently wish to do so. 19. FURTHER INFORMATION You are advised to refer to the Appendices set out in this Circular for further information. Yours faithfully, For and on behalf of our Board ASIA POLY HOLDINGS BERHAD LIM TECK SENG Non-Independent Non-Executive Director 58

69 PART B INDEPENDENT ADVICE LETTER FROM INTER-PACIFIC SECURITIES TO OUR NON- INTERESTED SHAREHOLDERS IN RELATION TO THE PROPOSED ACQUISITION

70 EXECUTIVE SUMMARY All definitions used in this Executive Summary shall have the same meaning as the words and expressions provided in the Definitions section of this Circular and as defined in the IAL herein, except where the context herein requires otherwise or where otherwise defined herein. All references to you are references made to the Non-Interested Shareholders, whilst references to we, us or our are references to IPS, being the Independent Adviser for the Proposed Acquisition. Set out hereunder is an executive summary which serves to highlight some of the salient points arising from IPS independent evaluation of the Proposed Acquisition. The Non-Interested Shareholders are advised to read and understand the contents of the IAL and the entire Part A of the Circular, including the appendices thereof, for more comprehensive information, evaluation and recommendation on the Proposed Acquisition before voting on the resolution pertaining to the Proposed Acquisition at the forthcoming EGM. 1. INTRODUCTION On 25 January 2017 and 21 February 2017, the Company entered into the share sale agreement and Supplemental SSA, respectively with the Vendors, for the Proposed Acquisition, to be satisfied via the Cash Consideration and Consideration Shares. Subsequently, the Company and the Vendors had on 4 July 2017 mutually agreed to the extension of the Stipulated Period (as defined in Section 6.4(ii) of this IAL) until 24 November In view of the interest of the Interested Person as disclosed in Section 12 of Part A of this Circular, the Proposed Acquisition is deemed a related party transaction pursuant to Rule of the Listing Requirements. 2. EVALUATION OF THE PROPOSED ACQUISITION In evaluating the Proposed Acquisition, we have taken into consideration the following: Section in the IAL Section 6.1 Area of evaluation Rationale for the Proposed Acquisition IPS comments The strengthening of the USD during the nine (9)- month FPE 31 December 2015 and FYE 31 December 2016 had worked in favour of Asia Poly in terms of currency exchange and bolstering its profits. However, in terms of total revenue, it had dropped from RM78.46 million in the FYE 31 March 2015 to RM56.76 million in the nine (9)-month FPE 31 December 2015 and recorded only RM58.15 million in the FYE 31 December IPS is of the view that the Malaysian cast acrylic industry continues to be challenging. IPS has noted that Asia Poly may not be able to sustain consistent profits due to the volatile fluctuation in the foreign currency exchange rate (i.e. USD/MYR rate) which affect, amongst others, Asia Poly s export sales and the purchases of raw materials. Furthermore, the rising operational costs in Malaysia, in particular, the rising labour costs due to the implementation of minimum wage which had seen the minimum wage in Peninsular Malaysia increase from RM900 to RM1,000 in July 2016 had and will affect the profitability of Asia Poly. IPS noted that the staff costs has been increasing year-on-year and the staff costs margin has increased to 8.44% in the FYE 31 December 2016, the highest compared to the historical staff costs margin ranging from 5.29% to 6.86% during the FYE 31 March 2011 to FPE 31 December

71 EXECUTIVE SUMMARY Section in the IAL Area of evaluation IPS comments Asia Poly is placing effort to maintain and improve the quality of its products to achieve greater efficiency and develop more markets for its cast acrylic products as well as to diversify and expand its business by undertaking the Proposed Diversification (via the Proposed Development and any new projects secured in the future) which is expected to add and contribute to the revenue and profits of the Group. The Proposed Acquisition provides an opportunity for the Group to diversify and expand its existing business activities to venture into property development which is expected to provide an additional revenue and earnings stream and contribute positively to the Group s future financial performance. Premised on the above, we are of the view that the rationale for the Proposed Acquisition is reasonable and not detrimental to the Non-Interested Shareholders. Please refer to Section 6.1 of this IAL for further details. Section 6.2 Evaluation of the Purchase Consideration The purchase consideration of RM14.8 million is at a discount of approximately RM3,918 or 0.03% based on the adjusted unaudited NA of HRLSB of RM14,803,918 as at 31 December 2016, after taken into consideration the net revaluation surplus of RM6.84 million based on the market value of the Land as appraised by the Valuer, waiver of advances by DYBL as at 31 December 2016 of approximately RM5.82 million and settlement of bank borrowings of HRLSB as at 31 December 2016 of approximately RM3.33 million by the Vendors. Premised on the above, we are of the view that the Purchase Consideration is fair. Please refer to Section 6.2 of this IAL for further details. Section 6.3 Evaluation of the issue price of the Consideration Shares The issue price of RM per Consideration Share was arrived at based on the five (5)-day volume weighted average market price of Asia Poly Shares up to and including the latest trading day prior to the date of execution of the SSA. Premised on the above, we are of the view that the issue price of RM each for the Consideration Shares is fair. Please refer to Section 6.3 of this IAL for further details. Section 6.4 Salient terms of the SSA We are of the view that the salient terms of the SSA are generally on normal commercial terms and are reasonable and not detrimental to the Non-Interested Shareholders. Please refer to Section 6.4 of this IAL for further details. 60

72 EXECUTIVE SUMMARY Section 6.5 Effects of the Proposed Acquisition The Proposed Acquisition will be satisfied in part by the issuance of Consideration Shares. As at the LPD, the number of Asia Poly Shares is million (RM35.18 million). Under the Minimum Scenario, the number of issued Shares and the issued share capital will remain at million Asia Poly Shares (RM35.18 million) after the Proposed Rights Issue of ICPS with Warrants and will increase by million Asia Poly Shares (RM6.80 million) to approximately million Asia Poly Shares (RM41.98 million) after the Proposed Acquisition. Under the Maximum Scenario, the number of issued Shares and issued share capital will increase by million Asia Poly Shares (RM5.65 million) to million Asia Poly Shares (RM40.82 million) assuming full exercise of the outstanding Warrants 2015/2020. The number of issued Shares and issued share capital remains at RM million Asia Poly Shares (RM40.82 million) after the Proposed Rights Issue of ICPS with Warrants. Furthermore, the number of issued Shares and issued share capital will increase by million Asia Poly Shares (RM6.80 million) to approximately million Asia Poly Shares (RM47.62 million) after the Proposed Acquisition. As at 31 December 2016, Asia Poly s NA per Share was RM0.20 per Share. After adjusting for subsequent events up to the LPD, the NA per Asia Poly Share decreased to RM0.19 per Asia Poly Share. Under the Minimum Scenario, the proforma NA of the Company after adjusting for subsequent events up to the LPD will increase from RM64.25 million to RM68.35 million after the Proposed Rights Issue of ICPS with Warrants and subsequently increase further to RM75.16 million pursuant to the Proposed Acquisition. The proforma NA per Share after adjusting for subsequent events up to the LPD will increase from RM0.19 to RM0.20 after the Proposed Rights Issue of ICPS with Warrants and subsequently remain at RM0.20 per Share after the full exercise of warrants 2015/2020 and the Proposed Acquisition. Under the Maximum Scenario, the proforma NA of the Company after adjusting for subsequent events up to the LPD will increase from RM64.25 million to RM69.90 million after assuming full exercise of the Warrants 2015/2020 and subsequently increase further to RM88.50 million pursuant to the Proposed Rights Issue of ICPS with Warrants. After the Proposed Acquisition, the proforma NA of the Company will increase further from RM88.50 million to RM95.30 million. The proforma NA per Share after adjusting for subsequent events up to the LPD will decrease from RM0.19 to RM0.18 assuming full exercise of the Warrants 2015/2020 and subsequently increase to RM0.23 after the Proposed Rights Issue of ICPS with Warrants. The NA per Asia Poly Share will decrease to RM0.22 per Share after the Proposed Acquisition. 61

73 EXECUTIVE SUMMARY As at 31 December 2016, the gearing ratio was 0.05 times. After adjusting for subsequent events up to LPD, the gearing ratio remained at 0.05 times. Under the Minimum Scenario, the proforma gearing ratio as at 31 December 2016 after adjusting for subsequent events up to LPD will remain at 0.05 times after the Proposed Rights Issue of ICPS with Warrants and subsequently decrease to 0.04 times after the Proposed Acquisition. Under the Maximum Scenario, the proforma gearing ratio as at 31 December 2016 after adjusting for subsequent events up to the LPD will decrease from 0.05 times to 0.04 times assuming full exercise of the Warrants 2015/2020 and subsequently becomes negligible after the Proposed Rights Issue of ICPS with Warrants (after taking into consideration the repayment of bank borrowings of RM3.0 million). The gearing ratio will remain negligible subsequent to the Proposed Acquisition. The decrease in gearing ratio is mainly attributable to the increase in shareholders equity as a result of the issuance of the Consideration Shares pursuant to the Proposed Acquisition. However, under the Maximum Scenario, the decrease in gearing ratio is also attributable to the reduction in borrowings of RM3.0 million pursuant to the proposed utilisation of proceeds of the Proposed Rights Issue of ICPS with Warrants. The part settlement for the Proposed Acquisition via the Consideration Shares will ease the strain on the Group s cash flow as the Cash Consideration is expected to be financed via the Group s internally generated funds. Upon issuance of the Consideration Shares, the EPS of the Group will be diluted accordingly. However, the Proposed Acquisition is expected to contribute positively to the future earnings of the Company when the benefits are realised from undertaking the Proposed Development. Under the Minimum Scenario, the shareholding of DYBL as at LPD will increase from 48,802,300 Asia Poly Shares or approximately 14.63% to 82,424,055 Asia Poly Shares or approximately 21.95% after the Proposed Acquisition. Under the Maximum Scenario, the shareholding of DYBL as at LPD will increase from 48,802,300 Asia Poly Shares or approximately 14.63% to 82,453,755 Asia Poly Shares or approximately 19.08% after the Proposed Acquisition. The Proposed Acquisition will not have any effect on the existing convertible securities of Asia Poly. Premised on the above, we are of the view the financial effects of the Proposed Acquisition are not detrimental to the interest of the Non-Interested Shareholders. Please refer to Section 6.5 of this IAL for further details. 62

74 EXECUTIVE SUMMARY Section 6.6 Industry outlook and prospects of Asia Poly Group s property development business The overall prospects of the Malaysian economy are expected to remain positive, supported by private sector expenditure. The private sector expenditure remained the key driver of growth and contributed towards the continued expansion in domestic demand. The Valuer cited in the Valuation Report that the locality of the Land has been fast growing due to availability of existing good network of highways as well as established commercial areas and that the locality of the Land is also surrounded by well-established townships and industrial parks which offer various job and business opportunities to residents in the locality of the Land. We are of the view that, the prospects of the Proposed Development pursuant to the Proposed Acquisition are positive, after taking into consideration, amongst others, the strategic location of the Land, the outlook of the Malaysian economy which is expected to be sustained and the prospects of the property market within the locality of the Land. Please refer to Section 6.6 of this IAL for further details. Section 6.7 Risk factors in relation to the Proposed Acquisition The risk factors in relation to the Proposed Acquisition are set out in Section 6 of Part A of this Circular. These risks may or may not have an impact on Asia Poly Group in the future. Apart from the risk factors that had been stated in Section 6 of Part A of this Circular, we have included additional risk factors that should be considered by the Non-Interested Shareholders as follows: (i) Risk of dependence on third party contractors; and (ii) Competition within the property development industry. Please refer to Section 6.7 of this IAL for further details. 3. CONCLUSION AND RECOMMENDATION We have assessed and evaluated the Proposed Acquisition and our evaluation is set out in Section 6 of the IAL. The Non-Interested Shareholders should take into account all the merits and demerits of the Proposed Acquisition based on all relevant pertinent factors including those which are as set out in Part A of this Circular, the relevant appendices thereof, this IAL and other publicly available information. After having considered all the various factors included in our evaluation for the Proposed Acquisition and based on the information made available to us, we are of the opinion that the Proposed Acquisition is FAIR AND REASONABLE insofar as the Non-Interested Shareholders are concerned and is not to the detriment of the Non-Interested Shareholders. Accordingly, we recommend the Non-Interested Shareholders to VOTE IN FAVOUR of the resolution pertaining to the Proposed Acquisition to be tabled at the Company s forthcoming EGM. 63

75 West Wing, Level 13 Berjaya Times Square No. 1, Jalan Imbi Kuala Lumpur 27 July 2017 To: The non-interested shareholders of Asia Poly Holdings Berhad Dear Sir/Madam, ASIA POLY HOLDINGS BERHAD ( ASIA POLY OR THE COMPANY ) INDEPENDENT ADVICE LETTER TO THE NON-INTERESTED SHAREHOLDERS OF ASIA POLY ( NON-INTERESTED SHAREHOLDERS ) IN RELATION TO THE PROPOSED ACQUISITION BY ASIA POLY OF THE ENTIRE EQUITY INTEREST IN HRLSB FROM THE VENDORS FOR A PURCHASE CONSIDERATION OF RM14,800,000 This IAL is prepared for inclusion in this Circular dated 27 July All definitions used in this IAL shall have the same meaning as the words and expressions provided in the Definitions section of this Circular, except where the context herein requires otherwise or where otherwise defined herein. 1. INTRODUCTION On 25 January 2017 and 21 February 2017, the Company entered into the share sale agreement and Supplemental SSA, respectively with the Vendors, for the Proposed Acquisition, to be satisfied via the Cash Consideration and Consideration Shares. Subsequently, the Company and the Vendors had on 4 July 2017, mutually agreed to the extension of the Stipulated Period (as defined in Section 6.4(ii) of this IAL) until 24 November In view of the interest of the Interested Person as disclosed in Section 12 of Part A of this Circular, the Proposed Acquisition is deemed a related party transaction pursuant to Rule of the Listing Requirements. Accordingly, the Board (save for DYBL) had on 11 January 2017 appointed IPS as the Independent Adviser to provide the non-interested directors of the Company and the Non-Interested Shareholders in respect of the Proposed Acquisition with: (i) comments as to: a) whether the Proposed Acquisition is fair and reasonable so far as the Non- Interested Shareholders are concerned; and b) whether the Proposed Acquisition is to the detriment of the Non-Interested Shareholders; and such opinion must set out the reasons for, the key assumptions made and the factors taken into consideration in forming that opinion; (ii) (iii) advise the Non-Interested Shareholders on whether they should vote in favour of the Proposed Acquisition; and take all reasonable steps to satisfy itself that it has a reasonable basis to make the comments and advice in (i) and (ii) above. 64

76 The purpose of this IAL is to provide the Non-Interested Shareholders with an independent evaluation of the Proposed Acquisition and our opinion and recommendation thereon subject to the scope and limitations specified herein. You should nonetheless rely on your own evaluation of the merits and demerits of the Proposed Acquisition before making a decision on the course of action to be taken. THIS IAL IS PREPARED SOLELY FOR THE USE OF THE NON-INTERESTED SHAREHOLDERS FOR THE PURPOSE OF VOTING ON THE RESOLUTION IN RELATION TO THE PROPOSED ACQUISITION AT THE FORTHCOMING EGM AND SHOULD NOT BE USED OR RELIED UPON BY ANY OTHER PARTY FOR ANY OTHER PURPOSE WHATSOEVER. IF YOU ARE IN ANY DOUBT AS TO THE COURSE OF ACTION TO BE TAKEN, YOU SHOULD CONSULT YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISERS IMMEDIATELY. YOU ARE ADVISED TO READ AND FULLY UNDERSTAND BOTH THIS IAL AND PART A OF THIS CIRCULAR TOGETHER WITH THE ACCOMPANYING APPENDICES THEREIN AND TO CONSIDER CAREFULLY OUR EVALUATION AND RECOMMENDATION BEFORE VOTING ON THE RESOLUTION PERTAINING TO THE PROPOSED ACQUISITION TO BE TABLED AT THE FORTHCOMING EGM. 2. CREDENTIALS, EXPERIENCE AND EXPERTISE OF IPS IPS is a participating organisation of Bursa Securities and provides a range of services including corporate finance advisory, stocks and futures broking and research. Our corporate finance team provides a wide range of corporate finance advisory services including mergers, acquisitions and divestitures, equity fund raisings, corporate restructuring and independent advisory opinions. Our credentials and experience where we had been appointed as an independent adviser in the past two (2) years prior to the date of this IAL include, amongst others, the following: (i) (ii) (iii) the proposed exemption under paragraph 4.08(1)(b) of the Rules to Mr. Teoh Hock Tew Hock Chai ( THC ) and persons acting in concert with him ( PACS ) from the obligation to undertake a mandatory take-over offer for all ordinary shares in ELK-Desa not already held by THC and his PACS, where our independent advice letter was issued and dated 5 June 2017; the proposed privatisation of Ekowood International Berhad by TSH Resources Berhad to be undertaken by way of a members scheme of arrangement pursuant to Section 176 of the Companies Act, 1965, where our independent advice letter was issued and dated 10 February 2017; unconditional mandatory take-over offer of all the remaining ordinary shares of RM0.50 each in Wong Engineering Corporation Berhad (excluding treasury shares) not already owned by Ong Yoong Nyock, the offeror and the persons acting in concert with the offeror, where our independent advice circular was issued and dated 23 September 2016; (iv) proposed acquisition by Tong Herr Resources Berhad ( Tong Herr ) of 3,899,213 ordinary shares of THB100 each in Tong Heer Fasteners (Thailand) Co. Ltd. ( THFT ), an existing 50.01%-owned subsidiary company of Tong Herr, representing approximately 49.99% of the equity interest in THFT, from All Star International Holdings Limited, where our independent advice letter was issued and dated 8 September 2016; 65

77 (v) (vi) (vii) (viii) (ix) (x) proposed selective capital reduction and repayment exercise of Kejuruteraan Samudra Timur Berhad pursuant to Section 64 of the Companies Act 1965, where our independent advice letter was issued and dated 25 August 2016; proposed acceleration of the maturity of Kejuruteraan Samudra Timur Berhad s warrants 2013/2018 ( Warrants ) and the cancellation of the Warrants thereof, where our independent advice letter was issued and dated 25 August 2016; unconditional voluntary take-over offer by Tan Sri Dr Chen Lip Keong ( Tan Sri Dr Chen ) through RHB Investment Bank Berhad to acquire all the remaining ordinary shares, all the remaining outstanding warrants not already held by him and all the new shares that may be issued prior to the closing date of the offer arising from the exercise of the outstanding warrants of Karambunai Corp Bhd, where our independent advice circular was issued and dated 30 May 2016; unconditional mandatory take-over offer by Tan Sri Dr Chen through RHB Investment Bank Berhad to acquire all the remaining ordinary shares of Petaling Tin Berhad not already held by him, where our independent advice circular was issued and dated 30 May 2016; proposed acquisitions by Kerjaya Prospek Group Berhad (formerly known as Fututech Berhad) of the entire issued and paid-up share capital of Kerjaya Prospek (M) Sdn Bhd and Permatang Bakti Sdn Bhd from the vendors for a total purchase consideration of RM458.0 million, where our independent advice letter was issued and dated 29 December 2015; and proposed disposal by Hong Leong Real Estate Holdings Sdn. Bhd., a wholly owned subsidiary of GuocoLand (Malaysia) Berhad, of the entire issued and paid-up share capital in DC Tower Sdn. Bhd. to Hong Leong Bank Berhad for an indicative cash consideration of RM189,333,000, subject to adjustments (if any), where our independent advice letter was issued and dated 20 October Premised on the foregoing, IPS is capable and competent and has the relevant experience in carrying out its role and responsibilities as an independent adviser to advise the noninterested directors of the Company and Non-Interested Shareholders in relation to the Proposed Acquisition. 3. DECLARATION OF CONFLICT OF INTEREST We confirm that there is no existing conflict of interest situation or potential conflict of interest situation for us to carry out our role as the Independent Adviser in connection with the Proposed Acquisition and there was no professional relationship between us and Asia Poly in the past two (2) years prior to the date of this IAL. 4. SCOPE AND LIMITATIONS TO OUR EVALUATION OF THE PROPOSED ACQUISITION IPS was not involved in the formulation and structuring of the Proposed Acquisition and/or any deliberations and negotiations pertaining to the terms and conditions of the Proposed Acquisition. IPS scope as the Independent Adviser is limited to expressing an opinion on the fairness and reasonableness of the Proposed Acquisition and whether the transaction is to the detriment of the Non-Interested Shareholders, based on the following sources of information and documents: (i) (ii) information contained in Part A of this Circular and the appendices enclosed therein; other relevant information, documents, confirmations and representations provided to us by the Board and management of Asia Poly; 66

78 (iii) (iv) (v) (vi) discussions and consultations with the management of Asia Poly; the SSA; the Valuation Report and the valuation certificate prepared by the Valuer; and other publicly available information which we consider relevant for our evaluation. We have made all reasonable enquiries and have relied on the Board and the management of Asia Poly to exercise due care to ensure that all information, data, documents and representations provided to us to facilitate our evaluation are accurate, valid, complete, reasonable and free from any material omission in all material respects. Accordingly, IPS shall not assume any responsibility or liability whatsoever to any party for any inaccuracies, misstatements or omission of facts and information provided or represented by the Board and the management of Asia Poly. The directors of Asia Poly have collectively and individually accepted full responsibility for the accuracy, validity and completeness of the information, documents, data and statements provided to us and as contained herein in relation to the Proposed Acquisition (save and except for opinions expressed by IPS which do not contain factual information provided by the Company and information procured or developed by IPS independently of the Company) and confirmed that, after having made all reasonable enquiries and to the best of their knowledge and belief, all relevant facts and information in relation to the Proposed Acquisition that are necessary for our evaluations have been completely and accurately disclosed to us and there is no omission of any fact, the omission of which would render any such information provided to us false, incomplete, misleading and/or inaccurate. We are satisfied with the information provided by the Board and the management of Asia Poly and are not aware of any facts or matters not disclosed which may render any such information untrue, inaccurate or misleading or the disclosure of which might reasonably affect our evaluation and opinion as set out in this IAL. The Non-Interested Shareholders should note that the views expressed by IPS herein are, amongst others, based on the current economic, market, industry, regulatory, monetary, social-political and other conditions (if applicable) prevailing up to the LPD. Such conditions may change over a short period of time which may adversely affect amongst others, the financial and operational conditions of Asia Poly Group. Accordingly, our evaluations and opinion in this IAL do not take into account information, events and conditions arising or may occur after the LPD. Our advice should be considered in the context of the entirety of this IAL. In rendering our advice, we had taken note of pertinent issues which we believe are necessary and of importance to an assessment of the implications of the Proposed Acquisition and are of general concern to the Non-Interested Shareholders. As such: (i) our evaluations and recommendation contained herein are based on the assessment of the fairness and reasonableness of the valuation to arrive at the purchase consideration of the Proposed Acquisition. Comments or points of consideration which may be commercially oriented such as the rationale, financial effects, potential benefits and future prospects of the Proposed Acquisition are included for our overall evaluation as we deem necessary for disclosure purposes to enable the Non-Interested Shareholders to consider and form their views in a more holistic manner thereon. We do not express an opinion on legal, accounting and taxation issues relating to the Proposed Acquisition; 67

79 (ii) (iii) our views and advice as contained in this IAL only cater to the Non-Interested Shareholders at large and not to any Non-Interested Shareholder individually or any specific group of Non-Interested Shareholders. Hence, in carrying out our evaluations, we have not given due consideration to the specific investment objectives, risk profiles, financials and tax situations and particular needs of any individual Non-Interested Shareholder or any specific group of Non-Interested Shareholders; and we advise that any individual Non-Interested Shareholder or any group of Non- Interested Shareholders who is in doubt as to the action to be taken or require advice in relation to the Proposed Acquisition in the context of their individual investment objectives, risk profiles, financials and tax situations or particular needs, to consult their respective stockbrokers, bankers, solicitors, accountants or other professional advisers immediately. 5. DETAILS OF THE PROPOSED ACQUISITION The details of the Proposed Acquisition are set out in Section 2.2 of Part A of this Circular. 6. EVALUATION OF THE PROPOSED ACQUISITION In our evaluation of the Proposed Acquisition, we have taken into consideration the following factors in forming our opinion: (i) (ii) (iii) (iv) (v) (vi) (vii) rationale for the Proposed Acquisition; evaluation of the Purchase Consideration; evaluation of the issue price of the Consideration Shares; salient terms of the SSA; effects of the Proposed Acquisition; industry outlook and prospects of Asia Poly Group s property development business; and risk factors in relation to the Proposed Acquisition. [The rest of this page has been intentionally left blank] 68

80 6.1 Rationale for the Proposed Acquisition In evaluating the Proposed Acquisition, we have taken note of the rationale for the Proposed Acquisition as set out in Section 4.2 of Part A of this Circular. IPS comments We noted that the Board (save for DYBL, being the Interested Person) is of the view that the Proposed Acquisition is in line with the Group s intention to venture into property development which is expected to provide an additional revenue stream and contribute positively to the Group s future financial performance. The Group s current principal business is of investment holding and the manufacturing and sale of cast acrylic products. A summary of the audited financial information of Asia Poly Group for the past five (5) financial years from FYE 31 March 2011 to FYE 31 March 2015, the nine (9)-month FPE 31 December 2015 and FYE 31 December 2016 is as set out below: < Audited > FYE 31 March 2011 FYE 31 March 2012 FYE 31 March 2013 FYE 31 March 2014 FYE 31 March 2015 (1) FPE 31 December 2015 FYE 31 December 2016 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Revenue 61,953 79,785 77,705 68,633 78,458 56,760 58,153 Profit/(Loss) (677) 861 1, ,005 5,317 5,687 before tax Profit/(Loss) after tax (613) 695 1, ,608 4,062 (Source: Annual reports of Asia Poly) Note: (1) Asia Poly changed its financial year end from 31 March to 31 December. We note that Asia Poly has recorded fluctuating revenue and loss or low profits for the past five (5) financial years up to FYE 31 March Asia Poly had subsequently changed its financial year end to 31 December. Asia Poly had recorded higher profits for the FPE 31 December 2015 and FYE 31 December 2016 compared to the previous financial years mainly attributable to its export sales denominated in USD. The weaker RM against the USD during the said FPE and FYE, had contributed to the increase in profitability of the Group. [The rest of this page has been intentionally left blank] 69

81 The breakdown of revenue derived from export and local sales for the past financial years/period is as follows: < Audited > < FYE 31 March > FPE 31 December FYE 31 December Revenue RM 000 % RM 000 % RM 000 % RM 000 % RM 000 % RM 000 % RM 000 % Export 38, , , , , , , Local 23, , , , , , , Total 61, , , , , , , (Source: Management of Asia Poly Group) As shown in the above table, the proportion (%) of revenue contributed by export sales to Asia Poly s total revenue in RM value has increased from 66% in the FYE 31 March 2013 to 74% in the FYE 31 December While Asia Poly remains and continues to be a major supplier of cast acrylic sheets in Malaysia, its existing export customers continue to makeup the bulk of Asia Poly s sales. The strengthening of the USD during the nine (9)-month FPE 31 December 2015 and FYE 31 December 2016 had worked in favour of Asia Poly in terms of currency exchange and bolstering its profits. However, in terms of total revenue, it had dropped from RM78.46 million in the FYE 31 March 2015 to RM56.76 million in the nine (9)-month FPE 31 December 2015 (or approximately RM75.68 million based on the revenue for the nine (9)-month FPE 31 December 2015 extrapolated to twelve (12)-month for comparison purpose) and recorded only RM58.15 million in the FYE 31 December The decrease in revenue in the FYE 31 December 2016 was mainly due to the shortage of MMA supply and increase in MMA prices which lead to the decrease in demand from Asia Poly s customers. [The rest of this page has been intentionally left blank] 70

82 IPS is of the view that the Malaysian cast acrylic industry continues to be challenging. We have noted that Asia Poly may not be able to sustain consistent profits due to the volatile fluctuation in the foreign currency exchange rate (i.e. USD/MYR rate) which affect, amongst others, Asia Poly s export sales and the purchases of raw materials. Furthermore, the rising operational costs in Malaysia, in particular, the rising labour costs due to the implementation of the minimum wage had seen the minimum wage in Peninsular Malaysia increased from RM900 to RM1,000 in July 2016 had and will affect the profitability of Asia Poly. As set out in the table below, IPS noted that staff costs has been increasing year-on-year and the staff costs margin has increased to 8.44% in FYE 31 December 2016, the highest compared to the historical staff costs margin ranging from 5.29% to 6.86% during the FYE 31 March 2011 to FPE 31 December < Audited > FYE 31 March 2011 FYE 31 March 2012 FYE 31 March 2013 FYE 31 March 2014 FYE 31 March 2015 (1) FPE 31 December 2015 FYE 31 December 2016 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Revenue 61,953 79,785 77,705 68,633 78,458 56,760 58,153 Staff costs 3,925 4,223 4,565 4,708 4,914 3,393 4,910 Staff costs margin (%) (Source: Annual reports of Asia Poly) Note: (1) Asia Poly changed its financial year end from 31 March to 31 December. Asia Poly is placing effort to maintain and improve the quality of its products to achieve greater efficiency and develop more markets for its cast acrylic products as well as to diversify and expand its business by undertaking the Proposed Diversification (via the Proposed Development and any new projects secured in the future) which is expected to add and contribute to the revenue and profits of the Group. The future financial performance of Asia Poly is dependent on, amongst others, the performance of its key end user industries (such as advertising and visual communications, architectural and building construction and furniture manufacturing industries), the outlook for the demand and supply of its cast acrylic products locally in Malaysia and internationally where its export customers are, the fluctuations of foreign currency exchange for its export sales, operational costs (including labour costs and purchases of raw materials) and its ability to develop new markets and customers. In view of the above, the Proposed Acquisition provides an opportunity for the Group to diversify and expand its existing business activities to venture into property development which is expected to provide an additional revenue and earnings stream and contribute positively to the Group s future financial performance. The Proposed Acquisition and the Proposed Development serves as an entry point for the Group into property development. In this regard, the Company intends to seek the shareholders approval for the Proposed Diversification as the Proposed Acquisition is conditional on the shareholders approval for the proposed diversification of the existing business of the Group to include property development. In view of the above, we are of the view that the rationale for the Proposed Acquisition is reasonable and not detrimental to the Non-Interested Shareholders. 71

83 6.2 Evaluation of the Purchase Consideration Basis of the Purchase Consideration As stated in Section of Part A of this Circular, the Purchase Consideration of RM14.8 million was arrived at based on a discount of approximately RM3,918 or 0.03% from the adjusted unaudited NA of HRLSB of (i) RM14,803,918 as at 31 December 2016 after taking into consideration the following: (a) net revaluation surplus of (ii) RM6.84 million based on the market value of the Land as appraised by the Valuer of RM17.0 million; (b) waiver of advances by DYBL as at 31 December 2016 of approximately (iii) RM5.82 million; and (c) settlement of the bank borrowings of HRLSB as at 31 December 2016 of approximately (iv) RM3.33 million by the Vendors. Notes: (i) (ii) As set out in Section of Part A of the Circular, based on the audited financial statements of HRLSB for the FYE 31 December 2016, the adjusted audited NA of HRLSB as at 31 December 2016 is RM14,802,043 and the discount is approximately RM2,043 or 0.01%. The difference in value is explained in (ii) below. As set out in Section of Part A of the Circular, based on the audited financial statements of HRLSB for the FYE 31 December 2016, the audited net book value of the Land as at 31 December 2016 was RM8,026,271 due to professional fees incurred for the applications of the Master Layout Plan and the Planning Permission of RM31,580 which was not taken up earlier. In view of the said difference, the impact to the net revaluation surplus would be a reduction of RM24,001. The net revaluation surplus was arrived at as follows: RM Market value of the Land 17,000,000 Less: Audited net book value of the Land as at 31 December 2016 (8,026,271) Revaluation surplus 8,973,729 Less: Deferred tax liabilities at 24% (2,153,695) Net revaluation surplus 6,820,034 (iii) (iv) The advances by DYBL has increased to RM6,019,217 as at the date of the SSA and to RM7,017, as at the LPD. The unaudited and audited values as at 31 December 2016 are the same Valuer s basis of valuation The basis of valuation adopted is the market value which is defined by the Malaysian Valuation Standards as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. The valuation carried out by the Valuer is based on the legal interest in the Land comprising a parcel of vacant commercial land with approved Planning Permission comprising: (i) (ii) (iii) 12 units of three storey terraced shop offices (24' x 70'); 1 unit of four storey terraced shop office (24' x 70'); and 1 unit of three storey terraced shop office (35' x 70'), 72

84 all with basement level for car park bays, identified as Lot No 1894, held under Title No. Geran 47916, Mukim of Semenyih, District of Ulu Langat, Selangor Darul Ehsan subject to the title being issued, good, registrable, marketable, free from all encumbrances and with the benefit of vacant possession Valuation methods applied by the Valuer We noted that in arriving at the market value of the Land, the Valuer had adopted the residual method as the primary valuation method as the approved master layout plan and approved planning permission for the Proposed Development have been obtained while the comparison method is used as a cross-check. Residual method The residual method involves computation of the residual value of the project from the GDV of the project deducting therefrom the GDC including a margin for developer s profit. Thereafter, the residual value is discounted over the development period of the project at an appropriate discount rate which reflects the market value of the Land. Comparison method The comparison method is taken as cross-check due to inadequate similar comparables and inactive transactions in the vicinity. The comparison method is premised on the principle that comparison is made of the property under valuation with sales of other similar properties. Where dissimilarities exist, adjustments are made. The comparison method entails enlisting sales evidences of similar properties and making adjustments thereof to allow for value based differences (if any) such as the following: (i) (ii) (iii) (iv) (v) (vi) location of the property; shape, size and physical terrain of the land; design, age, finishes and condition of the building; legal and planning conditions affecting the property; use of surrounding lands; and other special market factors prevailing at the time of sale, valuation. The Valuer s computations of the market value of the Land based on the residual method and comparison method are as follows: Method of valuation Market value Remarks RM Residual method 17,000,000 Comparison method 17,000,000 Computed based on the adjusted value of RM per square foot ( psf ) 73

85 6.2.4 Basis of arriving at the market value of the Land Residual method In adopting the residual method to determine the market value of the Land, the Valuer had taken into consideration of the following: (a) (b) (c) Pricing and development period of the Proposed Development based on current market trends; The GDC is based on current market cost trends after due discussion with relevant consultants as well as information from secondary data; and All approvals from relevant authorities are obtained for the Proposed Development. [The rest of this page has been intentionally left blank] 74

86 The following are the bases and assumptions used by the Valuer, which forms the integral part in the computation to derive the market value of the Land based on the residual method: No. Bases and assumptions Estimated cost RM 000 IPS comments 1. Subdivision and title survey fees comprising basic charge, subdivision survey and preparation for pre-computation plan for the Proposed Development and application fees for registration and issuance of qualified and final titles 9 We note that these fees include basic charge and subdivision survey and were arrived at by the Valuer based on prescribed fee governed by the respective regulating Board (Lembaga Jurukur Tanah Malaysia). 2. Statutory contributions 432 Estimated development charges for water works (Syabas), electrical works (TNB) and contribution to Indah Water Konsortium based on Syabas rate for the premise type, TNB guidelines and Indah Water Konsortium guidelines. 3. Preliminaries and site preparation at RM653,400 per acre or approximately RM15.00 psf 1,304 This work includes the clearing of trees and all vegetation on the proposed development site. Then, earthworks and levelling involve cut and fill (if necessary), levelling of the site and the provision of platforms for construction works. The Valuer had also made reference to Juru Ukur Bahan Malaysia (JUBM) and Landon Seah Construction Cost Handbook whereby the minimum cost for preliminaries and site preparation starts at RM10.00 psf up to RM15.00 psf. We note that this is an estimate made by the Valuer after having taken into consideration similar developments and also from licensed land and quantity surveyors for their past projects. 4. Infrastructure and landscaping costs at RM435,600 per acre or approximately RM10.00 psf 870 We note that the Valuer had adopted RM435,600 per acre after having taken into consideration their surveys and enquiries with developers, quantity surveyors and landscape consultants and in line with JUBM and Langdon Seah Construction Cost Handbook. 75

87 No. Bases and assumptions Estimated cost RM 000 IPS comments 5. Building construction cost at RM80 psf 6,209 We noted that the estimated building cost for the shop offices is derived after referring to records of similar developments, developer s record of past projects, enquiries with relevant contractors and quantity surveyors as well as reference made to JUBM and Langdon Seah Construction Cost Handbook. 6. Professional fees at 7.0% of infrastructure, landscaping and construction costs 495 Professional fees are charges payable to engineers, architects, valuers, quantity surveyors and other related consultants, based on their professional scale of fees governed by their respective boards. We note from the Valuation Report that the professional fees for similar developments range between 4.5% and 8.00% per development. The Valuer has adopted 7% of the infrastructure, landscaping and construction costs as professional fees in their valuation. 7. Contingencies at 5.0% of infrastructure, landscaping and construction costs 354 A contingency is an incidental expense allocated by developers to cover any possible costs that may arise but cannot be predicted with certainty, such as increase in development costs and cost incurred due to delays in construction. Normally, the rates adopted by developers range around 3.0% to 5.0% of the total infrastructure, landscaping and construction costs. This range depends on the size of the project and the risk during construction period. For this valuation, the Valuer has adopted a contingencies rate of about 5% of the infrastructure, landscaping and construction costs for the Proposed Development. 76

88 No. Bases and assumptions Estimated cost RM 000 IPS comments 8. Legal, marketing and agency fees at 2.5% of GDV 999 The developer has allocated a budget of 2.5% of GDV which includes the cost of advertising to promote the properties within the development project such as advertising permits, brochures, hoarding, advertisement in newspapers as well as preparation of the respective sale and purchase agreements. 9. Financial changes at 8.5% 411 Developers normally seek financing from financial institutions to fund their development projects. We note that the interest rate is derived by the Valuer after taking into consideration of the current base lending rate offered by commercial banks of about 6.7% in Malaysia and adding spread of about 1.8%. 10. Developer s profit at 22% of GDV 8,793 The margin of a developer s profit may vary and might not be the same as other projects because it depends on the nature of the project, the content and scale of such development, capital outlay, marketability of developed units, profit margin from other forms of development. We note that the Valuer had adopted the rate of 22% of GDV for 3 to 4 storey shop offices of a similar scale to the Proposed Development based on enquiries and surveys with other developers. The adopted rate for the developer s profit is based on the developer s involvement and risk taken to complete the Proposed Development. Total estimated GDC 19,876 Based on the above, we are of the opinion that the bases and assumptions used by the Valuer, which forms an integral part in the Valuer s computation to derive the market value of the Land based on the residual method are reasonable and are consistent with valuations of such nature. 77

89 Based on the above, the Valuer s computation of the market value of the Land based on the residual method is as follows: No. Item Amount IPS comments RM A. Estimated GDV 39,969,252 We note that the GDV was arrived at by the Valuer by (based on 12 units of three storey terraced shop office (24 x reference to the current selling prices of completed shop 70 ), 1 unit of four storey terraced shop office (24 x 70 ) and 1 offices of similar units of development in the unit of three storey terraced shop office (35 x 70 )) neighbourhood of the Land. B. Estimated GDC (comprising, inter alia, survey fees, statutory contributions, preliminaries and site preparation, infrastructure and landscaping, building construction costs, professional fees, contingencies, legal, marketing and agency fees, financial charges and developer's profit) 19,875,902 These are typical costs arising from a development of this nature and are adopted by the Valuer based on amongst others, prescribed fee governed by the respective regulating Board (Lembaga Jurukur Tanah Malaysia), enquiries with relevant contractors and quantity surveyors, Langdon Seah Construction Cost Handbook, professional fees for similar developments and interest rate charged by the commercial banks in Malaysia. C. Estimated gross development profit (A) - (B) = (C) 20,093,350 D. Present value factor - Discount rate adopted by the Valuer over a time period of two (2) years 8.5% We note that the Valuer has considered the current base lending rate offered by commercial banks in Malaysia, cost of borrowing from financial institutions for similar type of development as well as reflecting the risk elements of the development project. Market value for the Land (C) discounted by (D) 17,068,402 (rounded down) 17,000,000 Please refer to the valuation certificate as set out in Appendix IV of the Circular for further details on the above. 78

90 Comparison method In determining the market value of the Land, the Valuer had investigated the records for evidences of similar properties which have been transacted in the locality and neighbourhood of the Land. Based on the Valuer s analysis of sale evidences in the locality and neighbourhood, the Valuer noted that there is a dearth of sale evidences of similar type of properties with similar land areas, category of land use, similar terrain condition and shape of the parcel. Although the available sale evidences are not directly comparable, in the absence of similar type of sale evidences in the small scope of locality, the Valuer had expanded its scope to a larger area but limiting it to the same district area, i.e. within the District of Ulu Langat. The Valuer has also considered similar characteristics to the Land such as category of land use limited to building category for commercial use and access to main road. The Valuer has adopted available and suitable sale evidences and has made all the necessary adjustments to render the comparable sale evidences as similar as the Land. a) Lot and location area No Mukim of Pekan Cheras District of Ulu Langat (Persiaran Nitsu, Off Silk Highway) Comparable 1 Comparable 2 Comparable 3 PT. No Mukim of Pekan Cheras District of Ulu Langat (Jalan Medan Masria, Taman Masria) PT No Mukim of Kajang District of Ulu Langat (Persiaran Bangi, Seksyen 9, Pusat Bandar Bangi) b) Title No GERAN HS(D) Kekal HS(D) Pajakan c) Property type A parcel of commercial land A parcel of commercial land A parcel of commercial land e) Category of land use Building Building Building f) Land used (zoning) Commercial Commercial Commercial g) Tenure Freehold interest Freehold interest 99-year leasehold interest expiring on 22 February The present unexpired term of the lease is 87 years. h) Land area 247, sq ft 5.69 acres 28, sq ft acres 107, sq ft acres i) Consideration RM79,340,160 RM5,824,176 RM16,500,000 j) Date of transaction 15 April November December 2013 k) Vendor Nittsu Transport Service (M) Sdn Bhd Chong Chen Hin Perbadanan Kemajuan Negeri Selangor l) Purchaser Mequity Assets Sdn Bhd New Foo Hing Tobacco Sdn Bhd Sunway Bangi Sdn Bhd Source Valuation and Property Services Department, Ministry of Finance Base land value (psf) RM RM RM Adjustment made (Refer Market condition (time), location, shape and accessibility, size and tenure note below) Effective adjusted value RM RM RM (psf) Average rate (psf), adopted by Valuer: RM psf 79

91 Note: All comparables are adjusted respectively based on the factors as follows: Factor Comparable 1 Comparable 2 Comparable 3 Time Factor Comparable 1 was transacted in April 2015 which is prior to the date of valuation. The Valuer made a 5% upward adjustment to reflect the current market condition which is better on the date of valuation. On the date of valuation, there are many ongoing developments in the vicinity and capital appreciation will be gained over the years. Comparable 2 was transacted in November 2014 which is prior to the date of valuation. The Valuer made a 7% upward adjustment to reflect the current market condition which is better on the date of valuation. On the date of valuation, there are many ongoing developments in the vicinity and capital appreciation will be gained over the years. Comparable 3 was transacted in December 2013 which is prior to the date of valuation. The Valuer made a 10% upward adjustment to reflect the current market condition which is better on the date of valuation. On the date of valuation, there are many ongoing developments in the vicinity and capital appreciation will be gained over the years. Location Comparable 1 is located in front of a busy highway and a much more preferred commercial area. The Valuer made a 30% downward adjustment to reflect that Comparable 1 is located in a better location. Comparable 2 is located in front of a busy highway and preferred commercial area. The Valuer made a 10% downward adjustment to reflect that Comparable 2 is located in a better location. Comparable 3 is located in a more established neighborhood and preferred commercial area. The Valuer made a 5% downward adjustment to reflect that Comparable 3 is located in a better location. Size Comparable 1 is almost 2.8 times larger than the Land. Based on the Valuer s study and experience, land with smaller land area is more expensive than those with larger land area. The Valuer made a 20% upward adjustment to reflect that the Land is smaller than Comparable 1. Comparable 2 is smaller than the Land. Based on the Valuer s study and experience, land with smaller land area is more expensive than those with larger land area. The Valuer made a 10% downward adjustment to reflect that the Land is larger than Comparable 2. Comparable 3 is almost 1.3 times larger than the Land. Based on the Valuer s study and experience, land with smaller land area is more expensive than those with larger land area. The Valuer made a 10% upward adjustment to reflect that the Land is smaller than Comparable 3. Tenure Both the Land and Comparable 1 are freehold property. The Valuer did not make any adjustment for this factor. Both the Land and Comparable 2 are freehold property. The Valuer did not make any adjustment for this factor. Comparable 3 is a leasehold property and the present unexpired term of the lease is 87 years. The Valuer made a 10% upward adjustment for this factor to reflect the difference. Shape The Land is triangular in shape thus limiting the potential of the development. Comparable 1 is irregular but larger and almost square like in shape thus provides more potential for commercial development. A 25% downward adjustment is made to reflect this factor. The Land is triangular in shape and Comparable 2 is trapezoidal or irregular in shape thus no adjustment is made to this factor. The Land is triangular in shape but Comparable 3 is irregular but almost triangular in shape thus no adjustment is made to this factor. 80

92 We note that the Valuer had made adjustments for differences of the comparable sale transactions against the Land. We also note that the sale evidences range from RM psf to RM psf. After making the necessary adjustments, the adjusted values range from RM psf to RM psf. In arriving at the market value using the Comparison Method, the Valuer has chosen the comparable properties because of their similarities in characteristics with the Land such as access to the main road, similar size and vacant commercial lands as well as all are located within the same district with the Land. After considering other factors such as the Land s surrounding developments, potential growth of the area and market stability, the Valuer had adopted the adjusted value of RM psf as a fair representation for the Land, which translates into a market value of RM17,000,000. We are of the view that the valuation methodology adopted by the Valuer is reasonable and is consistent with generally applied valuation methodologies. We are satisfied with the bases and assumptions used by the Valuer in deriving the valuation for the Land. As such, we are satisfied with and have relied upon the valuation of the Land conducted by the Valuer. IPS comments We are of the opinion that the residual method, being the primary valuation method adopted by the Valuer, and supported by the comparison method as a check is reasonable in the valuation of the Land. We did not evaluate the Proposed Acquisition using the earnings-based valuation methods involving the analysis of price-to-earnings ratio ( PE ratio ) and the enterprise value ( EV )/ earnings before interest, tax, depreciation and amortisation ( EBITDA ) ( EV/EBITDA ) ratio because HRLSB had no revenue and reported only LAT since its date of incorporation, being 26 November 2012 up to 31 December 2016 based on its past FPE and FYE audited financial statements. The use of valuation methods such as PE ratio and EV/EBITDA ratio are not appropriate as these valuation methods are usually used for companies that have longer operational track records and had been generating profits. In order to value HRLSB, IPS had adopted the asset-based valuation method using the adjusted NA as the most suitable valuation methodology to be used for the valuation of HRLSB. It is a commonly adopted valuation methodology in approaching valuations of assetsbased companies as all or certain substantial property-related assets may be carried at their historical cost or book values. The adjusted NA analysis assumes, inter alia, the existence of ready and committed buyer(s) for each asset at the fully revalued basis, and that the sale can be conducted efficiently without any time constraint and without regard to other relevant market factors that may affect the sale process. The market values would typically be appraised by expert valuers. We have relied upon the Valuation Report and valuation certificate issued by the Valuer and are satisfied with the basis and method of valuation of the Land as appraised by the Valuer as set out above in arriving at the adjusted NA of HRLSB. [The rest of this page has been intentionally left blank] 81

93 The adjusted NA of HRLSB was arrived at as follows: RM Unaudited net liabilities of HRLSB as at 31 December 2016 (1,192,678) (1) Add: (i) Net revaluation surplus (after adjusting for deferred tax of 24%) 6,844,035 (2) (ii) Waiver of advances by DYBL as at 31 December ,823,217 (3) (iii)settlement of the bank borrowings of HRLSB as at 31 December 3,329, by the Vendors from part of the proceeds of the Purchase Consideration Adjusted unaudited NA of HRLSB as at 31 December ,803,918 Purchase Consideration for HRLSB Discount - RM - % 14,800,000 3, Notes: (1) The net revaluation surplus was arrived at as follows: RM Market value of the Land as appraised by the Valuer 17,000,000 Less: Unaudited net book value of the Land as at 31 December 2016 (7,994,691) Revaluation surplus 9,005,309 Less: Deferred 24% (2,161,274) Net revaluation surplus 6,844,035 (2) The advances by DYBL to HRLSB has increased to RM6,019,217 as at the date of the SSA and to RM7,017, as at the LPD. DYBL in his capacity as a shareholder of HRLSB has been making monetary advances to HRLSB for working capital purposes. In consideration of the Company agreeing to enter into the SSA, DYBL agreed to waive all his rights to claim for the said advances from HRLSB. The advances by DYBL shall be deemed duly settled by HRLSB to DYBL upon the completion of the SSA on the Completion Date. As such, the waiver by DYBL will be treated as a capital contribution reserve (by a shareholder) of HRLSB. (3) Bank borrowings of HRLSB was RM3,329,344* as at 31 December 2016 comprising the following: RM Overdraft 297,896 Term loan with Ambank 3,031,448 3,329,344 * The balance bank borrowings (after excluding the redemption sum of the land of RM3,200,000) is RM129,344. Any amount in excess of the redemption sum at the time the Land is redeemed from Ambank will be assumed by DYBL. Based on the above, the Purchase Consideration of RM14.8 million is at a discount of approximately RM3,918 or 0.03% based on the adjusted NA of HRLSB. Therefore, we are of the view that the Purchase Consideration of RM14.8 million for HRLSB is fair. 82

94 6.3 Evaluation of the issue price of the Consideration Shares As set out in Section of Part A of this Circular, the issue price of RM per Consideration Share was arrived at after taking into consideration the five (5)-day volume weighted average market price ( VWAP ) of Asia Poly Shares up to and including 24 January 2017, being the last trading day ( LTD ) prior to the date of entering into the SSA, of RM The table below sets out the discount implied by the issue price per Consideration Share to the historical VWAP of Asia Poly Shares, as at the LTD and the LPD. Share price/ VWAP Discount of the issue price over the market price/vwap RM RM % Last traded market price of Asia Poly Shares as at the LPD Last traded market price of Asia Poly Shares as at the LTD Five (5)-day VWAP of Asia Poly Shares up to and including the LTD One (1)-month VWAP of Asia Poly Shares up to and including the LTD Three (3)-month VWAP of Asia Poly Shares up to and including the LTD Six (6)-month VWAP of Asia Poly Shares up to and including the LTD Twelve (12)-month VWAP of Asia Poly Shares up to and including the LTD (Source: Bloomberg) IPS comments Based on the above, the issue price of RM per Consideration Share represents a discount of between 1.22% and 27.44% over the last traded market price as at the LPD, VWAP for one (1)-month, three (3)-month, six (6)-month and twelve (12)-month up to 24 January The issue price of RM per Consideration Share was arrived at based on the five (5)-day VWAP of Asia Poly Shares up to and including the LTD prior to the date of execution of the SSA. Hence, we are of the view that the issue price of RM each for the Consideration Shares is fair. [The rest of this page has been intentionally left blank] 83

95 6.4 Salient terms of the SSA The salient terms of the SSA are set out in Section of Part A of this Circular. Our comments on the salient terms are as follows: IPS comments (i) Purchase consideration This term sets out the Purchase Consideration agreed between Asia Poly and the Vendors and also the agreed mode of payment, amount and finally for the satisfaction of the Purchase Consideration. This term is typical to transactions of such nature and as such is reasonable. (ii) Conditions Precedent The conditions precedent are ordinary terms typical to transactions of such a nature. These conditions precedent are mainly approvals required from the relevant authorities and parties to give effect to the Proposed Acquisition and are common terms in a share sale agreement of this nature. In the event the conditions precedents are not fulfilled and/or waived by Asia Poly within the 5 months from the date of the SSA or such extended period as may be mutually agreed upon by the parties in writing ( Stipulated Period )*, the following shall take place on or before the expiry of 14 days from the Stipulated Period: (a) (b) the Vendors shall refund Asia Poly, together with accrued interest, the Deposit and the Redemption Sum (if applicable); Asia Poly shall return or cause to be returned to the Vendors, all documents and things (whether original or copies) forwarded to Asia Poly by the Vendors (including all documents provided to or obtained by Asia Poly in the course of its due diligence review on HRLSB, if any; and thereafter, the SSA shall be mutually terminated and shall have no further force and effect with neither party having any rights and obligations against the other save and except for any antecedent breaches. Note: * On 4 July 2017, the Company and the Vendors had mutually agreed to the extension of the Stipulated Period until 24 November This termination clause is a common and reasonable term which serves to protect the interests of HRLSB and Asia Poly in the event any of the conditions precedent are not fulfilled. We are of the opinion that these terms are in line with common practice. (iii) Completion We noted that the completion shall take place upon the delivery of the documents as mentioned in Section of Part A of this Circular. This term is typical to transactions of such a nature and as such is reasonable. 84

96 (iv) Default We noted the term stated in Section of Part A of this Circular regulates the remedies for the parties in the SSA in the event of a default and also breach of provision of the SSA by either party to the SSA. Each party shall be entitled to terminate the SSA at any time by written notice prior to the completion of the SSA, if the other party commits a breach of its obligation which is incapable of remedy or if capable of remedy, not remedied within 14 days of it being given notice or in any given circumstances as stipulated in the SSA. We are of the opinion that this term is reasonable. (v) Shareholders advances DYBL in his capacity as a shareholder of HRLSB has been making monetary advances to HRLSB for working capital purposes. As at the date of the SSA, the advances by DYBL had increased to RM6,019,217. As at the LPD, the advances by DYBL had increased to RM7,017, DYBL expressly and irrevocably forgives the advances by him to HRLSB and waives all his rights to claim for the advances from HRLSB. The advances by DYBL shall be deemed duly settled by HRLSB to DYBL upon the completion of the SSA on the Completion Date. This term is to ensure that HRLSB is free of any claims relating to amount owing to DYBL as DYBL expressly and irrevocably forgives this shareholder s advance and waives all his rights to claim for the shareholder s advance from HRLSB. We are of the opinion that this term is reasonable. Based on our evaluation of the salient terms of the SSA, we are of the view that the salient terms of the SSA are generally on normal commercial terms for transactions of such a nature and the said terms are reasonable and are not detrimental to the interests of the Non-Interested Shareholders. 6.5 Effects of the Proposed Acquisition The Proposed Rights Issue of ICPS with Warrants and the Proposed Acquisition are not interconditional with each other. We have taken note of the proforma effects of the Proposed Acquisition on the issued share capital, number of issued Shares, NA, gearing and the substantial shareholders shareholdings of Asia Poly after including the proforma effects of the Proposed Rights Issue of ICPS with Warrants as illustrated in Section 7 of Part A of this Circular. The Minimum Scenario and Maximum Scenario are as follows: Minimum Scenario : Assuming only the Undertaking Shareholder subscribes to his entitlement pursuant to the Undertaking and subscription by the underwriters pursuant to the underwriting arrangements of the ICPS. The ICPS are converted at 2 ICPS for 1 Asia Poly Share. Maximum Scenario : Assuming all shareholders will subscribe for their entitlements in full. The ICPS are converted at 1 ICPS and cash of RM0.05 for 1 Asia Poly Share. 85

97 Effects of the Proposed Acquisition on: IPS comments Issued share capital and number of issued Shares The Proposed Acquisition will be satisfied in part by the issuance of Consideration Shares. As at the LPD, the number of Asia Poly Shares is million (RM35.18 million). Under the Minimum Scenario, the number of issued Shares and the issued share capital will remain at million Asia Poly Shares (RM35.18 million) after the Proposed Rights Issue of ICPS with Warrants and will increase by million Asia Poly Shares (RM6.80 million) to approximately million Asia Poly Shares (RM41.98 million) after the Proposed Acquisition. Under the Maximum Scenario, the number of issued Shares and issued share capital will increase by million Asia Poly Shares (RM5.65 million) to million Asia Poly Shares (RM40.82 million) assuming full exercise of the outstanding Warrants 2015/2020. The number of issued Shares and issued share capital remains at RM million Asia Poly Shares (RM40.82 million) after the Proposed Rights Issue of ICPS with Warrants. Furthermore, the number of issued Shares and issued share capital will increase by million Asia Poly Shares (RM6.80 million) to approximately million Asia Poly Shares (RM47.62 million) after the Proposed Acquisition. NA per Asia Poly Share As at 31 December 2016, Asia Poly s NA per Share was RM0.20 per Share. After adjusting for subsequent events up to the LPD, the NA per Asia Poly Share decreased to 0.19 per Asia Poly Share. Under the Minimum Scenario, the proforma NA of the Company after adjusting for subsequent events up to the LPD will increase from RM64.25 million to RM68.35 million after the Proposed Rights Issue of ICPS with Warrants and subsequently increase further to RM75.16 million pursuant to the Proposed Acquisition. The proforma NA per Share after adjusting for subsequent events up to the LPD will increase from RM0.19 to RM0.20 after the Proposed Rights Issue of ICPS with Warrants and subsequently remain at RM0.20 per Share after the Proposed Acquisition. Under the Maximum Scenario, the proforma NA of the Company after adjusting for subsequent events up to the LPD will increase from RM64.25 million to RM69.90 million after assuming full exercise of the Warrants 2015/2020 and subsequently increase further to RM88.50 million pursuant to the Proposed Rights Issue of ICPS with Warrants. After the Proposed Acquisition, the proforma NA of the Company will increase further from RM88.50 million to RM95.30 million. The proforma NA per Share after adjusting for subsequent events up to the LPD will decrease from RM0.19 to RM0.18 assuming full exercise of the Warrants 2015/2020 and subsequently increase to RM0.23 after the Proposed Rights Issue of ICPS with Warrants. The NA per Asia Poly Share will decrease to RM0.22 per Share after the Proposed Acquisition. 86

98 Effects of the Proposed Acquisition on: IPS comments Gearing As at 31 December 2016, the gearing ratio was 0.05 times. After adjusting for subsequent events up to the LPD, the gearing ratio remained constant at 0.05 times. Under the Minimum Scenario, the proforma gearing ratio as at 31 December 2016 after adjusting for subsequent events up to the LPD will remain at 0.05 times after the Proposed Rights Issue of ICPS with Warrants and subsequently decrease to 0.04 times after the Proposed Acquisition. Under the Maximum Scenario, the proforma gearing ratio as at 31 December 2016 after adjusting for subsequent events up to the LPD will decrease from 0.05 times to 0.04 times assuming full exercise of the Warrants 2015/2020 and subsequently becomes negligible after the Proposed Rights Issue of ICPS with Warrants (after taking into consideration the repayment of bank borrowings of RM3.0 million). The gearing ratio will remain negligible subsequent to the Proposed Acquisition. The decrease in gearing ratio is mainly attributable to the increase in shareholders equity as a result of the issuance of the Consideration Shares pursuant to the Proposed Acquisition. However, under the Maximum Scenario, the decrease in gearing ratio is also attributable to the reduction in borrowings of RM3.0 million pursuant to the proposed utilisation of proceeds of the Proposed Rights Issue of ICPS with Warrants. Earnings and EPS The Proposed Acquisition is not expected to have an immediate material effect on the consolidated earnings and EPS of the Group for the FYE 31 December 2017 as the Proposed Acquisition will only be completed in the 3rd quarter of However, the Proposed Acquisition is expected to contribute positively to the future earnings of the Group when the benefits are realised from undertaking the Proposed Development. Substantial shareholders shareholdings Under the Minimum Scenario, the shareholding of DYBL as at LPD will increase from 48,802,300 Asia Poly Shares or approximately 14.63% to 82,424,055 Asia Poly Shares or approximately 21.95% after the Proposed Acquisition. Under the Maximum Scenario, the shareholding of DYBL as at LPD will increase from 48,802,300 Asia Poly Shares or approximately 14.63% to 82,453,755 Asia Poly Shares or approximately 19.08% after full exercise of Warrants 2015/2020 and the Proposed Acquisition. Convertible securities The Proposed Acquisition will not have any effect on the existing convertible securities of Asia Poly. 87

99 IPS comments We noted that the Proposed Acquisition is expected to be funded via a combination of the Cash Consideration and issuance of the Consideration Shares. The part settlement via the Consideration Shares will ease the strain on the Group s cash flow as the Cash Consideration is expected to be financed via the Group s internally generated funds. Upon issuance of the Consideration Shares, the EPS of the Group will be diluted accordingly. However, the Proposed Acquisition is expected to contribute positively to the future earnings of the Company when the benefits are realised from undertaking the Proposed Development. Based on the above, we are of the view that the financial effects of the Proposed Acquisition are not detrimental to the interest of the Non-Interested Shareholders. 6.6 Industry outlook and prospects of Asia Poly Group s property development business We refer to the industry outlook and the prospects of Asia Poly Group s property development business as set out in Sections 5.1, 5.4, 5.5 and 5.7, respectively of Part A of this Circular. IPS comments We note the intention of Asia Poly to diversify into the business of property development. Accordingly, we have taken note of the prospects of the Proposed Acquisition and the Proposed Development as set out in Sections 5.1, 5.4, 5.5 and 5.7 of Part A of this Circular. The overall prospects of the Malaysian economy are expected to remain positive, supported by private sector expenditure. The private sector expenditure remained the key driver of growth and contributed towards the continued expansion in domestic demand. The Malaysian economy is expected to remain on a steady growth path, expanding between 4% and 5% in The national income, as measured by the gross national income, is estimated to increase by 5.0% to RM39,699 (2016: 4.8; RM37,812). In the first quarter of 2017, we noted that 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%). Private consumption will be sustained by continued wage and employment growth, with additional lift coming from various policy measures to raise disposable income. The property market was adversely affected by, amongst others, the uncertainty of the global political scene and low domestic economic growth as volume and trade decreased by 11.5% and 3.0% respectively as compared to Market volume recorded 320,425 transactions worth RM billion in 2016, which was a reduction of 11.5% in volume and 3.0% in value against However, the residential sub-sector continued to lead the overall market with 63.4% contribution in volume and 45.1% in value. In addition, the shop sub-sector recorded 12,881 transactions worth RM9.39 billion, dominating 54.2% of the commercial property transactions and 26.1% of the total value. 88

100 The Proposed Acquisition and Proposed Development is a commercial property development on a freehold commercial land located in the state of Selangor. Selangor state s property market performance softened in 2016 as indicated by the moderation of market activity and construction sector (62,959 transactions recorded worth RM40.70 billion, down by 15.9% and 13.7% in volume and value, respectively). Similarly, the shop sub-sector in Selangor state s property market recorded 2,100 transactions worth RM2.52 billion in 2016, which was a reduction by 27.8% in volume and 27.3% in value respectively compared to In addition, shop overhang saw an increase as there were 343 overhang units worth RM million, up by 98.3% in volume in Selangor state s property market. Notwithstanding the above, the Valuer cited in the Valuation Report that the locality of the Land has been fast growing due to availability of existing good network of highways as well as established commercial areas and that the locality of the Land is also surrounded by wellestablished townships and industrial parks which offer various job and business opportunities to residents in the locality of the Land. We are of the view that the prospects of the Proposed Development pursuant to the Proposed Acquisition are positive, after taking into consideration, amongst others, the strategic location of the Land, the outlook of the Malaysian economy which is expected to be sustained and the prospects of the property market within the locality of the Land. 6.7 Risk factors in relation to the Proposed Acquisition We have taken note of the risk factors in relation to the Proposed Acquisition as set out in Section 6 of Part A of this Circular. These risks may or may not have an impact on Asia Poly Group in the future. Apart from the risk factors that had been stated in Section 6 of Part A of this Circular, it is pertinent to note that there are other additional risk factors that should be considered as follows: Risk of dependence on third party contractors The Group s property development business will be dependent on the support of third party contractors to ensure the continuous supply of services and construction materials. Although the Group will not be dependent on any single third-party contractor, any substantial limitation or sub-standard performance of third party contractors and their inability to supply sufficient labour, whether skilled or unskilled, and sufficient quality services and building materials will inevitably disrupt the progress and/or quality of the Group s operation and may cause adverse effects. Thus, the Group will have to focus on the selection of reliable and reputable third-party contractors with good track record for its projects as well as implementing control procedures such as careful planning, closely monitoring of project progress by its contractors and prompt actions to ensure the overall positive progress of the projects. Competition within the property development industry The Group s property development business may face competition from both international and local property developers with respect to factors such as location, facilities, supporting infrastructure, services and pricing. Competition between property developers may result in increased costs for land acquisition, more difficulties in successfully bidding for property projects via tenders, oversupply of new properties and a slowdown in the approval process for new property developments by the relevant government authorities as well as lower selling prices. Therefore, strong competition with other property developers may adversely affect the Group s property development business. 89

101 Presently, the Asia Poly Group is principally involved in the business of investment holding and the manufacture and sale of cast acrylic products. The Proposed Development represents Asia Poly Group s initial foray into property development. The Group intends to diversify and expand its business activities to include property development in order to provide an additional revenue and profit stream to the Group and reduce its dependence on its existing business. With the venture and expansion into a new business segment, Asia Poly will face new business risks inherent in the property development industry. We wish to highlight that although efforts and measures would be taken by Asia Poly Group to mitigate the risks associated with the Proposed Acquisition and the property development business segment, no assurance can be given that one or a combination of the risk factors as stated in Section 6 of Part A of this Circular and the above mentioned risks will not occur and give rise to material and adverse impact on the business and operations of Asia Poly Group, its financial performance, financial position or prospects thereon. In evaluating the Proposed Acquisition, Non-Interested Shareholders should carefully consider the said risk factors and its mitigating factors prior to voting on the resolution pertaining to the Proposed Acquisition at the forthcoming EGM of Asia Poly. 7. CONCLUSION AND RECOMMENDATION The Non-Interested Shareholders should take into account all the merits and demerits of the Proposed Acquisition based on all relevant pertinent factors including those which are as set out in Part A of this Circular, the relevant appendices thereof, this IAL and other publicly available information. In our evaluation of the Proposed Acquisition and in arriving at our opinion, we have taken into consideration various factors which are summarised as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) the rationale for the Proposed Acquisition is reasonable and not detrimental to the Non-Interested Shareholders; the Purchase Consideration is fair; the issue price of RM each for the Consideration Shares is fair; the salient terms of the SSA are based on normal commercial terms and are reasonable and not detrimental to the Non-Interested Shareholders; the effects of the Proposed Acquisition on the Group as set out in Section 6.5 of this IAL; the industry outlook and prospects as set out in Section 6.6 of this IAL; and the risk factors in relation to the Proposed Acquisition as set out in Section 6.7 of this IAL. [The rest of this page has been intentionally left blank] 90

102 After having considered all the various factors included in our evaluation for the Proposed Acquisition and based on the information made available to us, we are of the opinion that the Proposed Acquisition is FAIR AND REASONABLE insofar as the Non-Interested Shareholders are concerned and is not to the detriment of the Non-Interested Shareholders. Accordingly, we recommend the Non-Interested Shareholders to VOTE IN FAVOUR of the resolution pertaining to the Proposed Acquisition to be tabled at the Company s forthcoming EGM. Yours faithfully, For and on behalf of INTER-PACIFIC SECURITIES SDN.BHD. TAN KOK TIAM Head Corporate Finance YAP SIEW THEE Assistant General Manager Corporate Finance 91

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126 APPENDIX II INFORMATION ON HRLSB 1. HISTORY AND BUSINESS HRLSB is a private limited company incorporated in Malaysia on 26 November 2012 under the Act. HRLSB has been dormant since the date of incorporation. The principal activity of HRLSB is to carry on business in land or property development. HRLSB is the registered owner of the Land which is located at Mukim of Semenyih, District of Ulu Langat, Selangor Darul Ehsan. The Land was acquired on 30 November 2012 for a purchase consideration of RM7,652, The acquisition of the Land was partially funded by the original shareholders (which includes DYBL) as well as a term loan of RM5.70 million and an overdraft facility of RM0.50 million from Ambank. Details of the Land are as follows: Postal address and identification : Lot 1894, held under Title No. Geran 47916, Mukim of Semenyih, District of Ulu Langat, State of Selangor Darul Ehsan Title land area : Measuring approximately acres (8, square metres or 86, square feet) Land tenure : Freehold interest Audited net book value as at 31 December 2016 : RM8,026,271 Category of land use : Building Express condition : Construction of buildings according to the specifications of the Selangor Town and Country Planning Department Restriction in interests : Nil Encumbrance / Charge : As at the Announcement LPD, the Land was charged to Ambank since 6 June 2013 as collateral for a term loan and overdraft facility. The term loan and overdraft outstanding then were RM2.88 million and RM0.28 million, respectively. Existing use : Vacant Proposed use : Commercial As at the LPD, the term loan and overdraft outstanding were RM2.07 million and RM0.20 million, respectively. The Land shall be redeemed by the Vendors and shall be free from any liens, charges and encumbrances prior to the completion of the Proposed Acquisition. Please refer to Section of Part A of this Circular for further details. 115

127 APPENDIX II INFORMATION ON HRLSB (CONT D) 2. SHARE CAPITAL As at the LPD, the share capital of HRLSB is as follows: Share capital No. of HRLSB Shares Amount (RM) Share capital 500, , DIRECTORS AND SUBSTANTIAL SHAREHOLDERS SHAREHOLDINGS As at the LPD, the directors, substantial shareholders and their respective shareholdings in HRLSB are as follows: No. of HRLSB Shares % of issued share capital of HRLSB Name Nationality Directors and shareholders DYBL Malaysian 400, YBH Malaysian 50, Shareholder YBT Malaysian 50, Total 500, SUBSIDIARY AND ASSOCIATED COMPANY As at the LPD, HRLSB does not have any subsidiary and/ or associate company. 5. MATERIAL COMMITMENT As at the LPD, there is no material commitment incurred or known to be incurred by HRLSB that is likely to have a material adverse effect on HRLSB s financial position. 6. CONTINGENT LIABILITIES As at the LPD, the board of directors of HRLSB is not aware of any contingent liability incurred or known to be incurred by HRLSB, which upon becoming enforceable, may have a material impact on the financial position of HRLSB. 7. MATERIAL CONTRACT HRLSB has not entered into any material contract (being a contract entered into out of the ordinary course of business) within the past 2 years immediately preceding the date of this Circular. 8. MATERIAL LITIGATION As at the LPD, HRLSB is not engaged in any material litigation, claims or arbitration, either as plaintiff or defendant and the board of directors of HRLSB is not aware of any proceedings pending or threatened against HRLSB or of any facts likely to give rise to any proceedings, which may materially and/or adversely affect the financial position or business of HRLSB. 116

128 APPENDIX II INFORMATION ON HRLSB (CONT D) 9. SUMMARY AND COMMENTARIES OF FINANCIAL INFORMATION The summary of the audited financial information of HRLSB for the past three FYE 31 December 2014, FYE 31 December 2015 and FYE 31 December 2016 are as follows: (Audited) FYE 31 December 2014 FYE 31 December 2015 FYE 31 December 2016 (RM 000) (RM 000) (RM 000) Revenue LBT (485) (487) (398) LAT (485) (487) (398) Total borrowings (1) (6,197) (5,247) (3,329) Issued share capital Net liabilities (286) (773) (1,171) No. of HRLSB Shares ( 000) Net liabilities per HRLSB Share (RM) (0.57) (1.55) (2.34) Loss per HRLSB Share (RM) (0.97) (0.97) (0.80) Current ratio N/A^ Neg Neg Gearing ratio N/A * N/A * N/A * Notes: (1) The borrowings were utilised for the purchase of the Land. The date of drawdown was on 28 June N/A^ Neg N/A * Not applicable as there are no current assets. Negligible. Not applicable as the gearing ratio is negative. Commentaries: (i) FYE 31 December 2014 vs FPE 31 December 2013 (i.e., from 26 November 2012, being the date of incorporation to 31 December 2013) HRLSB did not generate any revenue for the FYE 31 December 2014 and FPE 31 December 2013 as HRLSB was dormant. HRLSB recorded a LAT of approximately RM0.49 million for the FYE 31 December 2014 (FPE 31 December 2013: RM0.30 million) mainly due to higher term loan and overdraft interest charges of RM0.47 million for the FYE 31 December 2014 (FPE 31 December 2013: RM0.23 million). 117

129 APPENDIX II INFORMATION ON HRLSB (CONT D) (ii) FYE 31 December 2015 vs FYE 31 December 2014 HRLSB did not generate any revenue for the FYE 31 December 2015 and FYE 31 December 2014 as HRLSB was dormant. HRLSB recorded a LAT of approximately RM0.49 million for the FYE 31 December 2015 (FYE 31 December 2014: RM0.49 million). HRLSB s LAT of RM0.49 million is mainly due to term loan and overdraft interest charges amounting to RM0.47 million for the FYE 31 December 2015 (FYE 31 December 2014: RM0.47 million). (iii) FYE 31 December 2016 vs FYE 31 December 2015 HRLSB did not generate any revenue for the FYE 31 December 2016 and FYE 31 December 2015 as HRLSB was dormant. HRLSB recorded a LAT of approximately RM0.40 million for the FYE 31 December 2016 (FYE 31 December 2015: RM0.49 million) mainly due to lower term loan and overdraft interest charges of RM0.36 million for the FYE 31 December 2016 (FYE 31 December 2015: RM0.47 million) as a result of repayments made and reduction of the base lending rate by Ambank from 6.85% per annum to 6.65% per annum in July For the past 3 FYE 31 December 2014, FYE 31 December 2015 and FYE 31 December 2016 under review: (i) (ii) (iii) there were no exceptional or extraordinary items; there were no accounting policies adopted by HRLSB which are peculiar to HRLSB because of the nature of its business or the industry in which it is involved in; and there were no audit qualifications of the financial statements of HRLSB. [The rest of this page has been intentionally left blank] 118

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