losses of RM208,000 for the unaudited three (3) months consolidated statement of profit or loss for the financial period ended 31 March 2016.

Transcription

1 ML GLOBAL BERHAD ( MGB OR THE COMPANY ) PROPOSED DIVERSIFICATION OF THE EXISTING BUSINESS OF MGB AND ITS SUBSIDIARIES ( MGB GROUP ) TO INCLUDE PROPERTY DEVELOPMENT AND PROPERTY INVESTMENT ( PROPOSED DIVERSIFICATION ) 1. INTRODUCTION On behalf of the Board of Directors of MGB ( Board ), RHB Investment Bank Berhad ( RHBIB ) is pleased to announce that the Company proposes to diversify the existing business of MGB Group to include property development and property investment ( New Businesses ). 2. DETAILS OF THE PROPOSED DIVERSIFICATION Presently, MGB Group is principally engaged in the business of project management and property construction ( Existing Business ). Effective 15 July 2016, Vintage Tiles Industries Sdn Bhd ( VTI ), a wholly-owned subsidiary of the Company, had ceased the business operations of manufacturing and trading in roof tiles. This is due to VTI was operating in a very competitive environment and in an industry which is experiencing declining revenue and margins. The manufacturing division of VTI had recorded: (i) (ii) accumulated losses of RM17.2 million based on the audited consolidated statement of profit or loss for the financial year ended 31 December 2015; and losses of RM208,000 for the unaudited three (3) months consolidated statement of profit or loss for the financial period ended 31 March As such, the cessation of VTI s manufacturing division is expected to reduce losses and improve the cash flow of MGB Group. On 23 March 2017, the Board announced that its indirect wholly-owned subsidiary, Delta Gallery Sdn Bhd ( DGSB ), had on the same date entered into a joint venture agreement ( JVA ) with Alaf Cahaya Development Sdn Bhd ( Alaf Cahaya ) to carry out property development on a piece of leasehold land of 96 years expiring 4 September 2112 held under master title known as H.S.(D) PT in Mukim Petaling, District of Petaling, State of Selangor measuring approximately 18, square meters ( sq m ) ( Development Land ) into a mixed property development project ( Development Project ) ( Joint Venture ). The Development Land is currently charged to United Overseas Bank (Malaysia) Berhad ( UOB ) as security for the loan granted by UOB to Alaf Cahaya for the purpose of development of the Development Land ( UOB Loan ). Under the terms of the JVA, Alaf Cahaya will be entitled to RM37.0 million to be satisfied in the following manner: (i) (ii) RM2.0 million in cash paid by DGSB upon signing of the JVA; and the balance of RM35.0 million will be settled via contra of properties to be developed on the Development Land ( Settlement Units ). Any shortfall or excess in value shall be remedied in cash. As part of the terms of the JVA, DGSB shall assume and settle an amount of approximately RM19.75 million due and owing by Alaf Cahaya to MITC Engineering Sdn Bhd ( MITCE ) as well as shall pay and settle the UOB Loan together with the interest thereon (including the prepayment and/or penalty, if any) with UOB not exceeding the sum of RM8.0 million. Alaf Cahaya had appointed MITCE, a wholly-owned subsidiary of MGB, as the main contractor for the Development Project. DGSB has agreed to continue with the appointment of MITCE as the main contractor for the Development Project. 1

2 Alaf Cahaya had launched the Development Project in November 2014 and sold 10 units of shop before DGSB and Alaf Cahaya entered into the JVA. DGSB will be entitled to all the sales proceeds from the sale of the units to be developed on the Development Land, including the balance unbilled amount of any sold unit, other than the Settlement Units. DGSB shall be responsible for the construction and completion of the Development Project at its sole risk, cost and expense, in accordance with the approved layout plan. Alaf Cahaya is the registered and beneficial owner of the Development Land. Simultaneously with the execution of the JVA, Alaf Cahaya had executed and delivered a Power of Attorney in favour of DGSB authorising and empowering DGSB to deal with all matters relating to the Development Land. In addition, MGB Group is in the midst of exploring, discussing and negotiating with other parties for MGB Group to acquire more lands and/or to undertake other similar small to medium scale property development projects via joint ventures, the details of which have yet to be determined as at this juncture. In view of this, the Board expects MGB Group s Existing Business activities to be diversified to include property development and property investment. Barring unforeseen circumstances, the Board anticipates the net profit from the New Businesses may contribute more than 25% of the total net profits of MGB Group in future financial years. In conjunction with the diversification to include property development as a principal activity of MGB Group, the Board also proposes for the diversification to include that of property investment to act as an ancillary principal activity resulting from MGB Group s future involvement in property development. As such, the Board proposes to seek its shareholders approval for the Proposed Diversification at an extraordinary general meeting to be convened by the Company. The Board believes that MGB Group has the capacity, capabilities and resources to diversify into the New Businesses after considering the competency and experience of its Executive Director & Chief Executive Officer, Datuk Lim Lit Chek and its Executive Director & Deputy Chief Executive Officer, Lim Kim Hoe. They will be supported by other key management personnel including Wong Tack Leong (Deputy Chief Executive Officer), Chew Wee Seong (Chief Operating Officer), Lee Hon Meng (Chief Operating Officer), Yeoh Keong Hoong (Head of Sales, Marketing and Credit Department) and Caleb Lee Kin Keung (Business Development Manager). Details of the key management for the New Businesses are set out in Section 2.6 of this announcement. Notwithstanding the Proposed Diversification, the Board intends to continue with MGB Group s Existing Business. 2.1 Information on DGSB DGSB is a wholly-owned subsidiary of Vintage Tiles Industries (EM) Sdn Bhd, which in turn is a wholly-owned subsidiary of MGB. DGSB was incorporated in Malaysia on 21 December 2016 as a private limited company. As at 13 April 2017, being the latest practicable date ( LPD ), the issued share capital of DGSB is RM250,000 comprising 250,000 ordinary shares. Its business activity is property development. As at the LPD, the Directors of DGSB are Tan Sri Lim Hock San, Datuk Wira Lim Hock Guan, Datuk Lim Lit Chek and Lim Kim Hoe. 2.2 Information on Alaf Cahaya Alaf Cahaya is a company incorporated in Malaysia on 26 November 2012 as a private limited company. As at the LPD, the issued share capital of Alaf Cahaya is RM4,300,000 comprising 1,000,000 ordinary shares and 3,300,000 preference shares. Its business activity is property development. As at the LPD, the Directors of Alaf Cahaya are Kevin Sathiaseelan A/L Ramakrishnan, Choo Choon Seng and Liew Yau Tit. 2

3 As at the LPD, the shareholders of Alaf Cahaya together with their respective shareholdings are as follows: Name Direct No. of Alaf Cahaya shares Indirect % No. of Alaf Cahaya shares Liew Yau Tit 300, Prominent Xtreme Sdn Bhd 400, Axis Hub Sdn Bhd 300, Choo Choon Seng ,000 * 40.0 Note: * Deemed interested via Prominent Xtreme Sdn Bhd pursuant to Section 8 of the Companies Act, Information on the Development Land The Development Land is owned and registered under Alaf Cahaya. Further information on the Development Land is as follows: Details of land title and postal address : H.S.(D) PT in Mukim Petaling, District of Petaling, State of Selangor bearing postal address of No. 19-3, Jalan PJU 5/11, Dataran Sunway, Kota Damansara, Petaling Jaya, Selangor Total land area : Measuring approximately 18, sq m Land tenure : Leasehold land of 96 years expiring 4 September 2112 Express condition : Commercial building Restriction of Interest Category of land use Endorsements : Nil The land cannot be transferred, leased or charged unless consent from the State Authority is obtained Building Registered proprietor : Alaf Cahaya Encumbrances : The Development Land is currently charged to UOB Existing and proposed use : The Development Land is intended for property development The proposed use of the Development Land is set out in Section 2.4 of this announcement. % The local council, Majlis Perbandaran Subang Jaya ( MPSJ ) had approved the development order and building plan on 2 October 2014 and 2 December 2015 respectively for the proposed mixed development on the Development Land comprising shop office and serviced apartments. Subsequently, Alaf Cahaya had submitted the revised development order ( Revised Development Order ) and building plan ( Revised Building Plan ) to MPSJ on 26 April 2016 and 7 December 2016 respectively. The Revised Development Order was approved on 8 June 2016 whereas the Revised Building Plan is still pending approval from MPSJ. The earthwork for the Development Land is completed and currently the foundation work is in the progress. 3

4 2.4 Information on the Development Project The Development Project will be developed into a block of 32-storey of mix development building comprising two (2) phases as follows: Phase 1 : Four (4)-storey shops with a total of 74 units shops of between 1,125 square feet ( sq ft ) to 10,458 sq ft Phase 2 : 24-storey with a total of 398 units of serviced apartments of 823 sq ft to 2,020 sq ft with one residents facilities floor and five (5)-storey carpark Alaf Cahaya had launched the shop units (Phase 1) of the Development Project in November As at the LPD, Alaf Cahaya had sold 10 shop units. As at the LPD, the serviced apartments (Phase 2) has yet to be launched and is intended to be launched in 4th quarter of calendar year 2017 after obtaining the approval for the advertising permits and developers licenses ( APDL ) from Kementerian Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan (KPKT). DGSB will submit the application for the APDL in due course. The Development Project has an estimated gross development value of approximately RM270.0 million with an estimated gross development cost of RM236.5 million (including land cost) and an estimated gross development profit of RM32.5 million. The construction of Phase 1 of the Development Project has commenced in July 2016 and is expected to be completed by the 4th quarter of calendar year The entire Development Project comprising Phase 1 and Phase 2 is expected to be completed in year Sources of funding for the Development Project The costs of the Development Project of approximately RM236.5 million will be entirely borne by DGSB and funded via a combination of bank borrowings, progressive collections from sales billings and internally-generated funds and/or a 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 will depend on, among others, the demand/take-up rate of the properties. 2.6 Skills and expertise of MGB Group in the New Businesses Details of the key management involved in the New Businesses are set out below: (i) Datuk Lim Lit Chek ( Datuk Lim ) Datuk Lim was appointed as Chief Executive Officer ( CEO ) and Executive Director of the Company on 1 December He graduated with a Master Degree in Engineering Management from the Ivy League s Cornell University in New York, United States of America. He also holds a First Class Honours Bachelor Degree in Civil Engineering and a Bachelor Degree in Business Administration with the highest distinction from the RMIT University in Melbourne. His other academic achievements include winning the VICROADS Education Prize, Best Student Award, Golden Key National Honor Society Award, Most Innovative Award in Concrete Design Competition (C.I.A.), all of which in Australia and the Fellowship Merit Award from Cornell University. As a member of Board of Engineering Malaysia, Datuk Lim has 16 years of experience in field of property development and construction. Currently, he is responsible for the overall management and strategic direction of the Company, including its construction and property development projects, and thus, has been instrumental in the growth and development of MGB. In the past, he was involved in managing and overseeing various types of development projects including residential, commercial and industrial properties. 4

5 (ii) Lim Kim Hoe ( LKH ) LKH was appointed to the Board as Executive Director and Deputy CEO of the Company on 1 August He graduated with an Honour Degree in Bachelor of Engineering (Civil) from the University of Melbourne, Australia. LKH has more than nine (9) years working experience in the field of property development and construction. After graduation, he began his career with LBS Bina Group Berhad ( LBGB ) with the responsibility in property management, business development and construction activities. Some of the more notable projects he was involved in includes residential projects in Bandar Saujana Putra, D Island Residence and Taman Tasik Puchong, commercial project in Brinchang Square, Cameron Highland and industrial project in Taman Perindustrian Tasik Perdana, Puchong. (iii) Wong Tack Leong ( WTL ) WTL was appointed as Deputy CEO of the Company on 1 December He graduated with Bachelor of Building (Quantity Surveying) from University of South Australia in Australia. He is a member of Board of Quantity Surveyors Malaysia, Australia Institute of Quantity Surveyors, Associate member of the Malaysian Institute of Arbitrators and Institute of Value Management Malaysia. WTL has 21 years working experience in pre and post contract administration and duties related to quantity surveying such as contract implementation, costing and feasibility studies. During his 21 years working experience, he is responsible for overseeing the projects operations and resources, planning of the development and resources as well as monitoring the status and progress of each of the projects. (iv) Chew Wee Seong ( CWS ) CWS was appointed as Chief Operating Officer ( COO ) of the Company on 1 December He graduated with Bachelor of Finance from St. Cloud State University in the United States of America. He is also a MBA (Merit) graduate from the prestigious Cardiff Metropolitan University in Cardiff, United Kingdom. CWS has more than five (5) years of working experience in the banking and finance industry, he gained extensive experience including credit processing, marketing, credit control and review, security and risk management and consumer banking operations. Subsequently, he joined LBGB in August He gained a vast experience in property development. Over the years with LBGB, he has held several portfolios including sales and marketing, credit administration and property management, customer service and maintenance for all the projects of LBGB. He was appointed as the CEO of the Company from August 2014 to November 2016, before he was redesignated as COO of the Company. During his tenure as CEO of the Company, he had overseen the corporate function of the Company, as well as the day to day operation of both construction and manufacturing. (v) Lee Hon Meng ( LHM ) LHM was appointed as Chief Operating Officer of the Company on 1 December He graduated with Bachelor of Science (Physics) from Universiti Sains Malaysia (USM) in Malaysia. LHM has 14 years of experience in the field of construction management. His areas of expertise are high rise construction, vacant possession inspection and submission for development project, health and safety, plant and machinery and infrastructure works. He had completed various high profile projects. These projects include the Putrajaya LRT Station and the new Pantai Highway Bridge from Taman Datuk Harum to Pantai Dalam. 5

6 (vi) Yeoh Keong Hoong ( YKH ) YKH was appointed as the Head of Sales, Marketing and Credit Department of the Company on 1 April He graduated with Bachelor in Consumer Science from University Putra Malaysia (UPM) in Malaysia. YKH has 12 years of working experience in property development industry. After graduation, he began his career in LBGB and has accumulated an extensive portfolio which includes credit administration, investor relations, risk management, business development as well as sales and marketing. (vii) Caleb Lee Kin Keung ( CLKK ) CLKK was appointed as Business Development Manager of the Company on 1 December He graduated with Bachelor Degree in Civil Engineering from Aberdeen University in United Kingdom. After graduation, he began his career in a steel and aluminium design and construction company in Glasgow, United Kingdom. He later joined a construction company in Singapore as project engineer and further extended his knowledge and experience in building and infrastructure construction. He had also involved in design and planning for various type of residential, commercial and industrial properties during his employment with a property development company. CLKK has nine (9) years of experience in the fields of property development and construction industry. CLKK is currently involved in the development of the Development Project as the project manager and future development projects. He is focusing mostly on project planning, design and management of the Company. The Board believes that Datuk Lim, LKH, WTL, CWS, LHM, YKH and CLKK have sufficient knowledge and experience in the New Businesses to grow and sustain the New Businesses. The management of the Company is in the midst of identifying the suitable candidates to bolster the property development business to enable MGB Group to undertake more development projects. 3. RATIONALE FOR THE PROPOSED DIVERSIFICATION The Development Project is a business opportunity which is expected to provide an additional revenue stream to MGB Group and diversify its earnings base. Hence, the Proposed Diversification is in line with MGB Group s strategy to diversify its core business by venturing into the New Businesses, which is complementary to its existing property construction business. In addition, MGB Group already has, within its Directors and key personnel, the required expertise and experience to develop and grow the New Businesses. The Proposed Diversification is expected to contribute positively to MGB Group s future earnings and improve its financial position, which will enhance shareholders value and future prospects of MGB Group. 4. INDUSTRY OUTLOOK AND PROSPECTS OF THE PROPOSED DIVERSIFICATION 4.1 Overview and outlook of Malaysian economy The Malaysian economy expanded by 4.5% in the fourth (4th) quarter of 2016 (3Q 2016: 4.3%). Private sector expenditure remained the key driver of growth and contributed towards the continued expansion in domestic demand. However, public sector spending declined and partly offset the sustained growth in private sector activity. As a result, growth in domestic demand moderated. On the external front, net exports contributed positively to growth as real exports expanded at a faster rate than real imports. On a quarter-on-quarter seasonally adjusted basis, the economy recorded a sustained growth of 1.4% (3Q 2016: 1.4%). (Source: Economic and Financial Developments in the Malaysian Economy in the Fourth Quarter of 2016, Bank Negara Malaysia) 6

7 The Malaysian economy is expected to expand between 4% and 5% in 2017 (2016:4% - 4.5%) with nominal gross national income (GNI) per capita increasing 5% to RM39,699 (2016: 4.8%; RM37,812). Economic growth will be underpinned by strong domestic demand, especially private sector expenditure. Private sector activity will be supported by pro-growth fiscal and accommodative monetary policies in an environment of stable inflation, which is projected to range between 2% and 3% (2016:2% - 2.5%). Meanwhile, public sector expenditure will be driven mainly by higher capital investment by public corporations. (Source: Economic Report 2016/2017, Ministry of Finance Malaysia) 4.2 Overview and outlook of the property development and construction industries in Malaysia and Selangor (i) Malaysia The construction sector grew by 5.1% in the fourth (4th) quarter (3Q 2016: 7.9%), underpinned mainly by activity in the civil engineering subsector following progress in various projects in the petrochemical, transportation and utilities segments. Although still affected by oversupply issues in the commercial segment, growth in the non-residential sub-sector improved marginally, benefitting from the low base from the previous year. Activity in the residential sub-sector moderated, reflecting the subdued property market, while growth in the special trade sub-sector was supported by both early- and end-work activity. (Source: Economic and Financial Developments in the Malaysian Economy in the Fourth Quarter of 2016, Bank Negara Malaysia) (ii) Selangor The Selangor s property market performance softened in first half ( H1 ) 2016 as indicated by moderating of market activity and construction sector. There were 32,007 transactions recorded worth RM18.20 billion, decreased by 16.4% and 25.1% in volume and value respectively over H (38,285 transactions worth RM24.31 billion). Residential sub-sector retained its lion market share, contributed 77.6% of the total transactions, followed by commercial sub-sector with 8.5%, agricultural (6.4%), development land (5.2%) and industrial (2.3%) sub-sectors. Market activity across all sub-sectors was on downtrend with the exception of development land sub-sector, which grew by a mere 1.5%. The industrial sub-sector led the downtrend with contraction 35.3% followed by commercial (-35.2%), agricultural (- 14.5%), and residential (-14.1%) sub-sectors. Value of transactions was on similar downward trend. Residential property Residential sub-sector continued to propel the overall property market, accounting for 77.6% of the total share. Its market activity shrank in H with 32,007 transactions worth RM18.20 billion, a declined by 16.4% and 25.1% in volume and value respectively against H Terraced houses transactions dominated 53.2% of the state residential property transactions. The primary (i.e., residential) market recorded a slowdown in new launches with 1,349 units, dropped by 76.5% against 5,750 units launched in H Correspondingly, sales performance softened at 16.1% compared with 28.8% in H Most of these new units were two to three storey terraced houses, accounting for 49.0% (661 units) of the total. The residential overhang situation took a downturn as more units were recorded. There were 1,440 overhang units worth RM1.26 billion in H1 2016, up by 95.4% in volume and more than two-fold in value. On similar note, the unsold under construction and not constructed increase by of 37.0% and 26.2% respectively, each recorded 9,124 units (H1 2015: 6,658 units) and 1,707 units (H1 2015: 1,353 units). 7

8 In tandem with the softening market activity, the construction activity also moderated. Completions recorded a mark decrease of 71.6% to 2,565 units against H Likewise, starts and new planned supply also showed a reduction of 5.1% (12,559 units) and 49.6% (7,911 units) respectively. As at end-june 2016, there were 1,379,790 existing residential units with another 167,104 units in the incoming supply and 83,464 units in the planned supply. Prices of residential property both landed and high-rise remained firm with marginal movements in selected areas. Houses located in established areas served with efficient road linkages and adjacent to higher learning institutions experienced capital appreciation. As at second quarter ( Q2 ) 2016, the All House Price Index for the state stood at points, up by 6.6% from points in Q The average All House Price for the state as at Q stood at RM499,008, increased from RM467,995 in Q The residential rental market also portrayed upward movements. Rentals of terrace and high-rise units located adjacent to Kuala Lumpur saw substantial price increase particularly those located in Gombak and Petaling District. On similar note, rental for both landed and high-rise residential property strengthened particularly those nearby higher learning institutions as well as along the Mass Rapid Transit (MRT) route. Commercial property The commercial sub-sector recorded 2,719 transactions with total value of RM2.32 billion, indicating a significant decline of 35.2% in volume and 37.7% in value respectively (H1 2015: 4,195 transactions worth RM3.72 billion). Shop sub-sector recorded 1,046 transactions worth RM1.22 billion in H1 2016, dominating 38.5% of the commercial property transactions and more than 50.0% of the commercial property value. Compared with H1 2015, the market activity reduced by 36.4% in volume and 40.5% in value respectively. The shop overhang also saw an increasing number in the review period. There were 198 overhang units worth RM120.7 million, up by 55.9% in volume and more than three-fold in value against H (127 units worth RM25.72 million). Likewise, the unsold under construction increased by more than double (H1 2015: 383 units; H1 2016: 1,029 units) and not constructed up by 80.4% (H1 2015: 54 units; H1 2016: 92 units). Construction activities generally moderated with the exception of completions which increased by 10.3% (630 units) against H (571 units). On the contrary, starts and new planned supply shrank by 60.9% (H1 2015: 2,284 units; H1 2016: 894 units) and 47.0% (H1 2015: 1,299 units; H1 2016: 689 units) respectively. As at end-june 2016, there were 73,713 existing shops with another 18,204 units in the incoming supply and 15,187 units in the planned supply. Prices of shops were generally stable with increases noted in established commercial areas served with efficient road linkages as well as along Light Rail Transit (LRT) and Mass Rapid Transit (MRT) route. The increment was evidenced by the substantial increase in prices of three storey shops at Bandar Puchong Utama and single storey shops at Pusat Perdagangan Seri Kembangan, up by at 18.3% and 14.8% respectively. However, there were isolated instances of price decrease in several areas. Purpose-built Office The purpose-built office segment recorded a slightly better performance with an average occupancy rate of 76.7% (H1 2015: 75.7%). The sub-sector witnessed an annual take up of 39,008 sq m in the review period, lower than 237,234 sq m charted in H The sub-sector did not witness any new construction activity in the review period. As at June 2016, there were 195 existing purpose-built office buildings (3,307,385 sq m) and another 14 buildings (505,562 sq m) in the incoming supply. 8

9 Rentals of office buildings were generally stable across the board. Office buildings in good locations with close proximity or within city transit hub are amongst those which were in demand and fetched higher rents. The leisure sub-sector was not encouraging as the overall occupancy of hotels declined to 58.1% from 63.1% as reported by Tourism Malaysia recorded in H (Source: Property Market Report First Half 2016, Selangor, Valuation and Property Services Department, Ministry of Finance Malaysia) 4.3 Prospects of MGB Group MGB Group had been facing challenges in its existing core business of manufacturing and trading in roof tiles ( Manufacturing Division ). It had been operating in a very competitive environment and in an industry which is experiencing declining in revenue and margins. In view of that, the Board had ceased the Manufacturing Division in July 2016 and this is expected to reduce losses and improve the cash flow of MGB Group. Currently MGB Group is focusing mainly in the construction business which is the core driver of their revenue stream. The Company had completed the acquisition of MITCE which is involved in the construction business on 28 November With the combined order book from the new subsidiary, MITCE, MGB Group s on hand construction projects are widely located at Klang Valley, Johor and Pahang. The on-going projects are mainly residential properties comprising high-rise and landed as well as commercial properties such as shop lots. However, MGB Group will maintain its momentum to secure more construction and property development projects for potential additional revenue stream. Premised on the above and the positive outlook of the Malaysian economy, the Board is positive on the outlook of the property and construction industries and is confident that MGB Group s diversification into property development and property investment will enable MGB Group to have an additional income stream, which is expected to enhance MGB Group s profitability. With the combined effort of the management of the Company and the Board, they are optimistic that the Company will deliver satisfactory performance moving forwards. (Source: Management of MGB) 5. RISK FACTORS MGB Group will be exposed to risks prevailing in the property development and property investment industry following the Proposed Diversification. These risks include, but are not limited to, the following: 5.1 Business risk Pursuant to the Proposed Diversification, MGB Group s performance would be exposed to business risks inherent to the property development and property investment industry which MGB Group may not been subject to in the past. The common risks associated with the property development and property investment industry include timely commencement and completion of projects, project defects, dependency on operating permits, licenses, certificates and/or regulatory approvals, satisfactory performance of contractors, availability of labour and building materials, fluctuations in the prices of building materials, adverse weather conditions, changes in demand and supply of properties and changes in the regulatory framework governing the property development industry. Notwithstanding the above, MGB Group seeks to limit these risks through prudent financial policies, careful planning, continuous review of operations to manage cost and project progress from the planning stage to the eventual delivery of properties, and keeping abreast with the latest developments in the property market. 9

10 5.2 Business diversification risk Pursuant to the Proposed Diversification, MGB Group may be subject to new challenges and risks arising from the property development and property investment industry in which MGB Group has not been operating in the past. The risks include inefficiency of operations and lack of expertise in dealing with competition and handling unforeseen circumstances. MGB Group seeks to mitigate this risk by leveraging on the competency of the key personnel as mentioned in Section 2.6 of this announcement as well as to recruit additional employees with the necessary skills and expertise to support the key management team. 5.3 Competition risk MGB Group s property development business would face stiff competition from small players as well as existing players in the New Businesses following the Proposed Diversification. In addition, MGB Group, being a small player in the New Businesses also lacks the relevant track record and brand name as compared to the existing players whom enjoy the privilege of their established brand name and reputation. That being said, MGB will take the appropriate measures to remain competitive by providing quality products and competitive pricing to gain a foothold in the industry. MGB Group will always be on the lookout for new business opportunities to sustain the continuity and growth of the New Businesses. 5.4 Dependency on key personnel MGB Group s success in the New Businesses will depend significantly on the ability, expertise and continued efforts of its key personnel. Any loss of these key personnel without suitable and timely replacements may have an adverse impact on the New Businesses. The management of MGB Group recognise the importance of attracting and retaining key personnel. Accordingly, MGB Group will adopt appropriate approaches or measures to retain the key personnel. To avoid over dependency on any key personnel, MGB Group will strive to attract qualified and experienced employees to support the New Businesses. 6. EFFECTS OF THE PROPOSED DIVERSIFICATION 6.1 Issued share capital and substantial shareholders shareholdings The Proposed Diversification will not have any effect on the Company s issued share capital and the shareholdings of the Company s substantial shareholders. 6.2 Net assets ( NA ) per share and gearing The Proposed Diversification is not expected to have any immediate effect on the NA per share and gearing of MGB Group. However, the profit contribution arising from the Development Project and future projects are expected to have a positive impact on the NA per share of MGB Group while the future gearing of MGB Group will depend on the manner of funding of the Development Project and future projects. 6.3 Earnings and earnings per share ( EPS ) The Proposed Diversification is expected to contribute positively to MGB Group s earnings and EPS for the financial year ending 31 December 2017 as well as for future financial years, barring any unforeseen circumstances. 10

11 6.4 Convertible securities Save for the 17,558,100 outstanding warrants 2014/2019 ( Existing Warrants ) and 180,000,000 irredeemable convertible preference shares ( ICPS ), which are exercisable into new ordinary shares in MGB, the Company does not have any other convertible security or option as at the LPD. The Proposed Diversification will not give rise to any adjustment to the exercise or conversion price and/or number of the Existing Warrants and ICPS. 7. APPROVALS REQUIRED AND CONDITIONALITY The Proposed Diversification is conditional upon the following approvals being obtained: (i) (ii) the shareholders of MGB at an extraordinary general meeting to be convened for the Proposed Diversification; and approvals of any relevant authorities and/or parties, if required. 8. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM None of the Directors and/or major shareholders of the Company as well as persons connected with them have any interest, direct and/or indirect, in the Proposed Diversification. 9. DIRECTORS RECOMMENDATION The Board, after having considered and deliberated on all aspects of the Proposed Diversification, is of the opinion that the Proposed Diversification is in the best interest of MGB. 10. ADVISER RHBIB have been appointed by the Board as the Adviser to the Company for the Proposed Diversification. 11. ESTIMATED TIMEFRAME FOR SUBMISSION TO AUTHORITIES AND COMPLETION Barring any unforeseen circumstances, the applications to the relevant authorities for the Proposed Diversification will be made within one (1) month from the date of this announcement. Barring any unforeseen circumstances, the Board expects the Proposed Diversification to be completed by the second (2nd) quarter of calendar year This announcement is dated 18 April