CHIN HIN GROUP BERHAD ( CHIN HIN ) IN RELATION TO THE - PROPOSED ACQUISITION OF FORTY FIVE PER CENT (45%) EQUITY IN ATLANTIC BLUE SDN. BHD.

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1 CHIN HIN GROUP BERHAD ( CHIN HIN ) IN RELATION TO THE - PROPOSED ACQUISITION OF FORTY FIVE PER CENT (45%) EQUITY IN ATLANTIC BLUE SDN. BHD. 1. INTRODUCTION The Board of Directors of Chin Hin Group Berhad ( Board ) wishes to announce that the Company had on 18 July 2017 entered into a conditional share sale agreement ( SSA ) with the vendors of Atlantic Blue Sdn Bhd ( Atlantic Blue ), namely Tan Chyi Boon, Lim Chin Siu, Tan Paw Boon and Chong Chun Shiong (collectively, the Vendors ) ( Proposed Acquisition ). 2. PROPOSED ACQUISITION 2.1 Details of the Proposed Acquisition Pursuant to the SSA, Chin Hin shall acquire 45% equity interest in Atlantic Blue from the Vendors comprising 450,000 ordinary shares in Atlantic Blue ( Sale Shares ) for a total cash consideration of RM24,750,000 ( Purchase Consideration ) in the following manner: Vendors Existing no. of Sale Shares held No. of Sale Shares to be acquired Purchase Consideration (RM) Tan Chyi Boon 415, ,750 10,271,250 Lim Chin Siu 415, ,750 10,271,250 Tan Paw Boon 70,000 31,500 1,732,500 Chong Chun Shiong 100,000 45,000 2,475,000 Total 1,000, ,000 24,750,000 The Sale Shares shall be purchased by Chin Hin free from all claims, charges, liens, encumbrances and equities whatsoever, together with all rights attached thereto, and all dividends, rights and distributions, declared paid or made in respect thereof. Upon completion of the Proposed Acquisition, Atlantic Blue will be an associated company of Chin Hin. The salient terms of the SSA are set out in Section of this announcement Details of Atlantic Blue Atlantic Blue is a private limited company incorporated in Malaysia under the Companies Act, 1965 on 26 March Its principal address is A-30-05, Dataran 3 Dua, No 3, Jln 19/1, Petaling Jaya, Selangor, Malaysia. The issued and paid up capital of Atlantic Blue is 1,000,000 ordinary shares. The directors of Atlantic Blue are Tan Chyi Boon, Chong Chun Shiong, Lim Chin Siu and Tan Paw Boon and the current shareholders of Atlantic Blue are set out below: 1

2 Shareholders of Atlantic Blue No. of Atlantic Blue Shares Equity Interest (%) Tan Chyi Boon 350, Lim Chin Siu 350, Tan Paw Boon 300, Total 1,000, It is a condition precedent in the SSA that the Vendors shall transfer the shares of the Target Company among themselves to achieve the shareholdings reflected in Section 2.1. The principal activity of Atlantic Blue is installation of equipment for generation of electricity by way of solar power energy, sale of electricity through solar generation and investment holdings. It specialises in large-scale solar farming and provision of solar photovoltaic solutions. Its customers range from various sectors and industries, and it islso a strategic partner of ET Solar, which is a global engineering procurement and construction (EPC) provider of solar energy solutions in South East Asia. Atlantic Blue s regional offices are situated at Petaling Jaya, Selangor; Perai, Pulau Pinang and Alor Setar, Kedah. As at the date of this announcement, save as disclosed below, Atlantic Blue does not have any subsidiary or associated company: Name of Associated Company Date/Country of Incorporation Equity interest held (%) Issued and paid-up share capital (RM) Principal Activities Powertrack Sdn. Bhd. ( Powertrack ) Solarvest Energy Sdn. Bhd. ( Solarvest ) 26 January 2016/ Malaysia 14 July 2016/ Malaysia ,000 Engineering, procurement and construction of solar energy ,000 Engineering, procurement and construction of solar energy It is a condition precedent in the SSA that Atlantic Blue shall acquire all the remaining sixty per cent (60%) equity in Powertrack and Solarvest not currently held by Atlantic Blue of which, the purchase consideration shall be satisfied by way of issuance of new ordinary shares of Atlantic Blue to the respective Vendors. In this regards, upon fulfillment of the said condition precedent, both Powertrack and Solarvest will be the wholly owned subsidiaries of Atlantic Blue. Details of Powertrack Powertrack is a private limited company incorporated in Malaysia under the Companies Act, 1965 on 26 January Its principal address is A-30-05, Dataran 3 Dua, No 3, Jln 19/1, Petaling Jaya, Selangor, Malaysia. The issued and paid up capital of Power Track is 20,000 ordinary shares. The directors of Powertrack are Tan Chyi Boon and Lim Chin Siu and the current shareholders of Powertrack are set out below: 2

3 Shareholders of Powertrack No. of Powertrack Shares Equity Interest (%) Tan Chyi Boon 6, Lim Chin Siu 6, Atlantic Blue 80, Total 20, Powertrack is principally involved in the engineering, procurement and construction of solar energy. Details of Solarvest Solarvest is a private limited company incorporated in Malaysia under the Companies Act, 2016 on 14 July Its principal address is A-30-05, Dataran 3 Dua, No 3, Jln 19/1, Petaling Jaya, Selangor, Malaysia. The issued and paid up capital of Power Track is 10,000 ordinary shares. The directors of Solarvest are Tan Chyi Boon, Chong Chun Shiong and Lim Chin Siu and the current shareholders of Solarvest are set out below: Shareholders of Solarvest No. of Solarvest Shares Equity Interest (%) Tan Chyi Boon 2, Lim Chin Siu 2, Chong Chun Shiong 2, Atlantic Blue 4, Total 10, Solarvest is principally involved in the engineering, procurement and construction of solar energy Historical financial information of the Atlantic Blue, Powertrack and Solarvest Atlantic Blue The historical financial information of the Atlantic Blue based on its audited financial statements for the financial years ended ( FYE ) 31 March 2015 and 2016 and unaudited financial statements for FYE 31 March 2017 are set out below: < FYE 31 March > (Audited) (Audited) (unaudited) (RM 000) (RM 000) (RM 000) Revenue 16,024 34,719 39,215 Profit before taxation ( PBT ) 2,589 4,860 4,447 3

4 < FYE 31 March > (Audited) (Audited) (unaudited) (RM 000) (RM 000) (RM 000) Taxation 606 1,435 1,067 Profit after taxation ( PAT ) Shareholders funds/net assets ( NA ) 1,983 3,425 3,380 3,300 7,325 11,526 Powertrack The financial information of the Powertrack based on its unaudited financial statements for FYE 31 March 2017 is set out below: 31 March 2017 (unaudited) (RM 000) Revenue 3,704 Profit before taxation ( PBT ) 2,462 Taxation 591 Profit after taxation ( PAT ) 1,871 Shareholders funds/net assets ( NA ) 1,891 (c) Solarvest The financial information of the Solarvest based on its unaudited financial statements for FYE 31 March 2017 is set out below: 31 March 2017 (unaudited) Revenue 762,080 Profit before taxation ( PBT ) 178,688 Taxation 42,885 Profit after taxation ( PAT ) 135,803 Shareholders funds/net assets ( NA ) 145,803 4

5 2.1.3 Basis and justification of the Purchase Consideration The Purchase Consideration was agreed upon between Chin Hin and the Vendors on a willing buyer-willing seller basis. The Board is of the opinion that the Purchase Consideration is fair after taking into consideration the following: (i) (ii) (iii) (iv) (v) the unaudited NA and PAT of Atlantic Blue, Powertrack and Solarvest (collectively Target Companies ); the corporate guarantee to be provided by the Vendors guaranteeing that the Target Companies shall attain the consolidated PAT of RM20.0 million within 24 months from the date the Purchase Consideration is satisfied ( Completion Date ) ( Profit Guarantee ); the historical performance and operating history of the Target Companies; the potential synergistic benefits of the Proposed Acquisition to the Chin Hin and its subsidiary companies ( Chin Hin Group ) s market positioning as a one-stop integrated building materials supplier; and the future earning potential and prospects of the Target Companies as described in Section 5 of this announcement. In addition to the above, the Parties further agreed that, from the date of the SSA, the Vendors shall allow the Chin Hin s representatives to perform all such acts necessary (including but not limited to stock taking, auditing etc) to ascertain the NA of the Target Companies. There shall be an adjustment of the Purchase Consideration for any variance in excess of two per cent (2%) of should Target Companies NTA is more or less than RM14.91 million Source of funding The Purchase Consideration shall be funded from internal generated funds Liabilities to be assumed and estimated financial commitments pursuant to the Proposed Acquisition Chin Hin will not assume any additional liabilities (including contingent liabilities and guarantees (if any)) under the Proposed Acquisition. The existing liabilities of the Target Companies will be settled in the normal course of business. There are no additional financial commitments required from Chin Hin in respect of the Proposed Acquisition Salient Terms of the SSA The salient terms of the SSA are as follows: The Vendors intend to dispose and Chin Hin ( Purchaser ) intends to acquire 450,000 Sale Shares free from all claims, charges, liens, encumbrances and equities whatsoever together with all rights attached thereto subject to the terms and conditions set out in the SSA. 5

6 Purchase Consideration: The Purchase Consideration was arrived at on a willing seller willing buyer basis on the PAT for FYE 31 March 2017 of the Target Companies and Profit Guarantee. Conditions Precedent: the SSA shall be conditional upon the following being obtained, procured and/or fulfilled within the conditional period by the Purchaser and/or the Vendors within 90 days from the date of SSA ( Conditional Period ): (c) (d) (e) (f) (g) (h) satisfactory legal, financial and/or business due diligence findings on the Target Companies by the Purchaser; completion of the acquisition by Atlantic Blue the remaining sixty per cent (60%) equity in Powertrack and Solarvest not currently held by the Atlantic Blue from the relevant Vendors; incorporation of a private limited company ( Promoters Company ) to hold, save for the Sale Shares, all the Vendors shares in Atlantic Blue; the transfer of shares of Atlantic Blue among the Vendors to reflect their respective portions as stated in Section 2.1 of this announcement; the Promoters' Company entering into the shareholders agreement with Chin Hin ( Shareholders Agreement ) on terms and conditions to be mutually agreed upon; consent and/or approval from Sustainable Energy Development Authority (SEDA) and/or Suruhanjaya Tenaga (if applicable); consent and/or approval from the existing financier of the Target Companies (if applicable); and such other waivers, consents or approvals as may be required (or deemed necessary by the Parties hereto from any third party or governmental, regulatory body or competent authority. Conditions for Completion: If: (c) (d) (e) (f) (g) no event of default has occurred or would occur as a result of the completion of the SSA; the Conditions Precedent have been procured, obtained, fulfilled and/or waived; no material adverse change in the financial condition or operation of Target Companies since the date of the SSA, including but not limited to the maintenance of management continuity by the respective Vendors in the Target Companies ; all sums owing by Vendors and Atlantic Ecocity Sdn Bhd to the Target Companies have been fully repaid and/or recovered; the Vendors disposed and/or transferred fifty five per cent (55%) equity of the Target Company in aggregate to the Promoters Company; the Promoters Company entering into the Shareholders Agreement with Chin Hin; each of the representations and warranties remains accurate at the completion date; 6

7 (h) (i) the Vendors have not breached any undertakings, representations, warranties and covenants under the SSA; and no Governmental entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction or other order, whether temporary, preliminary or permanent, which is in effect and which has or would have the effect of making the transactions contemplated by the SSA illegal. Understanding Of The Parties: (c) In order to govern the relationship between the Purchaser and the Vendors, the Parties shall enter into the Shareholders Agreement within the Conditional Period. The Vendors agree and covenant that for a period of five (5) years from the Completion Date or cessation of their directorship/shareholdings in the Target Company, whichever the later, they will not and will cause and procure that they and/or their affiliated companies or affiliated persons does not become involved in the same and/or similar business of any of the Target Companies. The Vendors shall guarantee to the Purchaser that the Target Companies shall attain the profit after taxation of Ringgit Malaysia Twenty Million (RM20,000,000.00) ( Guaranteed Sum ) in aggregate within twenty four (24) months from the Completion Date failing which, the Vendors shall jointly and severally vide the Promoters Company be liable to pay the Purchaser the shortfall between forty five per cent (45%) of the shortfall between Guaranteed Sum and the actual profit after taxation of the Target Companies in aggregate for the aforesaid twenty four (24) months period. Termination Event: On the occurrence of any of the following defaulting events stated hereunder and provided that the event of default occurs before the completion date, the other non-defaulting party may (but is not obliged to) give notice in writing to the defaulting Party which in this context shall mean the Purchaser or the Vendors, and shall include Atlantic Blue s conduct as listed below. (c) (d) (e) Breach: breach of any material or fundamental terms or conditions of the SSA or a failure to perform or observe any material or fundamental undertaking, obligation or agreement expressed or implied in the SSA including the breach of any material warranties; or Receiver: a receiver, receiver and manager, trustee or similar official is appointed over any of the assets or undertaking of the defaulting party; or Arrangements: save and except as stated in the SSA pursuant to the acquisition and disposal of the Sale Shares, the defaulting party enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, the defaulting party s creditors or any class of them; or Winding-Up: an application, petition or order is made for the winding-up or dissolution of the defaulting Party, or a resolution is passed or any steps taken to pass a resolution for the winding-up or dissolution of the defaulting party, otherwise than for the purpose of an amalgamation or reconstruction which has prior written consent of the non-defaulting party; or Cessation of Business: the defaulting party ceases or threatens to cease carrying on a substantial portion of the defaulting party s business other than in compliance with the defaulting party s obligations under the SSA; or 7

8 (f) (g) (h) (i) Events of Default: the defaulting party commits any act or omits to do an act which results in the breach or non-fulfillment of any term or condition of any banking, finance or credit facility which has the effect of causing the events specified in sub-clauses, (c), (d) and (e) to occur; or Misrepresentation: any representation, warranty or statement which is made (or acknowledged to have been made) by the Parties in the SSA or which is contained in any certificate, statement, legal opinion, notice, replies made in the course of the due diligence review or information furnished in the due diligence review or provided under or in connection herewith or therewith proves to be incorrect in any material respect; or Nationalisation: any agency of any state seizes, compulsorily acquires, expropriates or nationalises all or a material part of the assets or shares of the defaulting party; or Government Action: any governmental authority or any person or entity acting or purporting to act under any governmental authority shall have taken any action in order to condemn, seize, appropriate or assume custody or control of the defaulting party; or all or any substantial part of the assets of the defaulting party or to curtail the defaulting party s authority in the overall conduct of the defaulting party s business or operations. Termination: If the defaulting party fails to remedy the relevant default or breach within the said fourteen (14) business days or such extended period as may be allowed by the nondefaulting party after being given notice by the non-defaulting party, to rectify such breach, the non-defaulting party may elect to terminate the SSA and claim damages or pursue its action. In the event of termination due to the default or breach of the Purchaser, or upon the Purchaser s failure to satisfy the relevant conditions precedent, the Vendors shall have the option of giving the Purchaser a notice of termination and forfeiting the Deposit absolutely as agreed liquidated damages and not by way of penalty and shall thereupon refund to the Purchaser all other sum or sums paid by the Purchaser, if any, towards the Purchase Consideration free of interest. In the event of termination due to the default or breach of the Vendors, or upon the Vendors failure to satisfy the relevant conditions precedent, the Purchasers shall have the option of giving the Vendors a notice of termination, and the Vendors shall within fourteen (14) Business Days from the date of receipt of the notice of termination from the Purchaser refund to the Purchaser the Deposit and all other monies paid by the Purchaser towards the Purchase Consideration, if any, free of interest, together with a further sum equivalent to the Deposit only as agreed liquidated damages and not by way of penalty and thereafter the SSA shall come to an end and become null and void and be of no further effect and neither party shall have any claim whatsoever against the other under or in respect of the SSA (save for the return of any documents belonging to the Vendors). 3. RATIONALE 3.1 Proposed Acquisition The Proposed Acquisition will enable Chin Hin to enhance its involvement in solar power investment business and to be able to diversify its customer base to include the customers of Atlantic Blue. In addition, it will allow Chin Hin to enjoy the profits derived from the business of the Target Companies, and therefore further strengthen the Chin Hin Group s income derived from the solar power business. 8

9 Upon completion of this Proposed Acquisition, it will grant Chin Hin the opportunities to expand its solar power investment business regionally to tropical countries. The Proposed Acquisition will also bode well with Chin Hin s commitment to its corporate social responsibilities by utilizing and partaking in business involving renewable energy. 4. RISK FACTORS 4.1 Business Risk The Target Companies are exposed to risks relating to the solar energy industry. However, given the prospects of the Target Companies as set out in Section 5 below and the diversification of customer base as well as geographical base, the Board is of the opinion that this risk is manageable. Notwithstanding the aforesaid, there is no assurance that any change to the above factors will not have a material adverse effect on the enlarged Chin Hin Group s business and financial conditions. 4.2 Transaction Risk The Proposed Acquisition is subject to the risk of non-completion of the SSA. The completion of the Proposed Acquisition is conditional upon the conditions precedent in the SSA. There can be no assurance that the Proposed Acquisition will not be exposed to risks such as the inability to obtain the approvals from the relevant parties and/or inability to comply with the conditions imposed by the relevant authorities, if any. However, Chin Hin will take and continue to take all reasonable steps to ensure satisfaction and/or waiver, as the case maybe, to ensure completion of the Proposed Acquisition. 4.3 Other risks As the Target Companies are operating within the solar power industry, it is exposed to the following business risks: (i) (ii) Dependency on experienced management and key personnel; and Risk inherent in the solar power including the possible high competition due to rapid technological changes. In addition, one of the conditions for completion in the SSA stipulates that the management continuity by the respective Vendors in the Target Companies shall be maintained. Therefore, this will be able to ensure the continuation of business and key personnel of the Target Companies. In addition, upon completion of the Proposed Acquisition, Chin Hin plans to introduce the necessary internal precautionary measures to mitigate/limit these risks. Chin Hin is confident that it is able to withstand such risks and is able to limit any potential consequential losses. Nevertheless, there is no assurance that such measures will be sufficient. 9

10 5. OUTLOOK AND PROSPECTS 5.1 Outlook on Solar Photovoltaics ( PV ) Industry Malaysia aims to be the second largest producer of PV in the world by 2020 with PV output of 20 per cent of global production. Malaysia is currently ranked third in terms of PV production whereby the current output is 12 per cent of global production. The Malaysian government has implemented various methods to drive solar energy growth, for example, embarking on net energy metering (NEM) which will enable more houses and building owners, whether industrial or commercial, to generate electricity for solar PV. (Source: The Sustainable Energy Development Authority of Malaysia (SEDA Malaysia)) The Malaysian government has also indicated that the Malaysian Solar PV Roadmap 2030 would be launched at the end of 2017 which will pave the way to drive Malaysian PV industry forward. The said roadmap encompassed industrial activities relating to design, research, manufacturing, system integration and deployment of PV technologies and products, which will prepare to transform Malaysia into a hub for solar manufacturing and services. (Source: Malaysian Investment Development Authority (MIDA)) In view thereof, the prospect for the PV Industry in Malaysia is bright in tangent with the Malaysian government s aspiration to be the second largest producer of PV in the world by This is further substantiated by the growing awareness on energy efficiency management and green technology initiatives in Malaysia. Therefore, the management of Chin Hin anticipates that demand for PV will continue to grow and remains positive in the future. 5.2 Prospects of Target Companies Based on the track records of Atlantic Blue for the past 3 financial years, the revenue of Atlantic Blue has improved from approximately RM16.02 million in 2015 to RM39.11 million in 2017, and its PAT has increased from approximately RM1.98 million to RM3.92 million in Based on its historical growth, the management of Chin Hin is optimistic that it will remain profitable and therefore contribute positively to the earnings of Chin Hin Group. This is further supplemented by the fact that the Proposed Acquisition will allow the Target Companies to leverage on the Chin Hin s networking and resources for its expansion of businesses, especially their client base. 6. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION 6.1 Share Capital The Proposed Acquisition will not have any effect on the issued and paid-up share capital of Chin Hin as the Proposed Acquisition does not involve any issuance of new ordinary shares of the Chin Hin Group. 6.2 NA and Gearing The Proposed Acquisition is not expected to have a material effect on the net assets per share of Chin Hin Group. It is also not expected to have any material impact on the gearing of Chin Hin in view that the purchase consideration will be satisfied by internally-generated funds. 10

11 6.3 Earnings and earnings per share The Proposed Acquisition are expected to be earnings accretive and will contribute positively to the long-term future earnings and earnings per share of Chin Hin Group. 7. APPROVALS REQUIRED FOR THE PROPOSED ACQUISITION The Proposed Acquisition are not subject to the approvals of the shareholders of Chin Hin or from any relevant authorities. The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities is 7.63%. 8. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS None of the directors and major shareholders of the Company as well as persons connected with them have any interest, direct and/or indirect in the Proposed Acquisition. 9. DIRECTORS STATEMENT After taking into consideration all aspects of the Proposed Acquisition, the Board is of the opinion that the Proposed Acquisition are fair and reasonable and in the best interest of the Chin Hin Group. 10. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed during the third quarter of DOCUMENTS AVAILABLE FOR INSPECTION The SSA is available for inspection at the registered office of Chin Hin at at Suite 10.03, Level 10, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur during normal business hours on Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 18 July