PROPOSED PRIVATE PLACEMENT OF UP TO 10% OF THE ISSUED AND PAID-UP SHARE CAPITAL OF DIGISTAR ("PROPOSED PRIVATE PLACEMENT")

Transcription

1 DIGISTAR CORPORATION BERHAD ("DIGISTAR" OR THE "COMPANY") PROPOSED PRIVATE PLACEMENT OF UP TO 10% OF THE ISSUED AND PAID-UP SHARE CAPITAL OF DIGISTAR ("PROPOSED PRIVATE PLACEMENT") (The terms used herein, unless the context otherwise stated, bear the same meaning as those defined in the earlier announcements in relation to the Proposed Private Placement.) Reference is made to the announcements dated 16 February 2016 and 19 February 2016 in relation to the Proposed Private Placement. Pursuant thereto, on behalf of the Board of Directors of Digistar, RHB Investment Bank Berhad wishes to announce the following additional information in relation to the Proposed Private Placement:- 1. Commentary on the financial performance and financial position of Digistar Group for the past three (3) financial years up to the financial year ended ("FYE") 30 September 2015 and the latest three (3)-month financial period ended ("FPE") 31 December 2015 Presently, Digistar Group is principally involved in the following operating segments:- i. Systems integration and broadcasting engineering segment involved in design, supply, installation and integration of information technology ("IT") infrastructure, teleconferencing, local area networks, interactive media management systems, radio and television news automation, telecommunication systems, integrated audio and visual systems and other related electronic systems. ii. iii. iv. Trading segment involved in the trading of all kinds of specialised electronic and electrical components and products throughout Malaysia. Maintenance segment involved in providing electronic systems maintenance and support services. Rental and hotel segment involved in renting, maintaining and upkeep of properties, health television operator and hotel operator. v. Property development segment involved in development of properties. vi. vii. Concession segment involved in an 18-year concession arrangement between the Group and the Ministry of Works, Malaysia for the privatisation of the design, development, construction and completion of the facilities and infrastructure of a training institute for Jabatan Kerja Raya ("JKR"), namely the Malaysian National Technology Advancement Centre at Alor Gajah, Melaka for a construction period of three (3) years, and to carry out asset management services for a period of 15 years which involve electronic system and equipment maintenance and support services for the training institute. Central monitoring security ("CMS") services involved in designing, supplying, installation and integration of security monitoring systems. The financial summary of Digistar Group based on the audited results for the past three (3) financial years up to the FYE 30 September 2015 and the latest unaudited quarterly results for the three (3)-month FPE 31 December 2015, is set out in the ensuing pages. 1

2 Unaudited Three (3)- month FPE 31 <------Audited FYE 30 September------> December RM'000 RM'000 RM'000 RM'000 Revenue 48, , ,923 39,493 Gross profit 8,374 28,355 16,041 9,932 Earnings/ (Losses) before interest, tax, depreciation (9,473) 9,952 (2,595) 5,684 and amortisation ("EBITDA"/ "LBITDA") Profit/ (Loss) before taxation ("PBT/ LBT") (11,868) (11,348) (24,464) 1,483 Profit/ (Loss) after taxation attributable to owners of the Company (10,827) (5,648) (16,756) 2,255 Gross profit margin (%) EBITDA/ (LBITDA) margin (%) (19.62) 9.07 (1.94) Total interest-bearing borrowings *1 258,711 *1 268,222 *1 279,991 *1 275,061 *1 Total fixed deposits, cash and bank balances *1 277,088 *1 231,541 *1 146,152 *1 106,606 *1 Net cash used in operating activities (13,461) (66,159) (103,334) (35,039) Shareholders' funds/ Net assets ("NA") 65,689 74,664 66,336 68,591 No. of Shares outstanding ('000) 345, , , ,040 NA per Share (sen) Current ratio (times) Gearing ratio (times) Note:- *1 Majorly comprising the amount arising pursuant to the bonds issued for the financing of the construction of a training institute in Melaka under an 18-year concession agreement with the Ministry of Works, Malaysia. Further details of the bonds are set out in the latest audited consolidated financial statements of the Group for the FYE 30 September FYE 30 September 2013 For the FYE 30 September 2013, Digistar Group recorded revenue of approximately RM48.29 million which represents a decrease of approximately RM21.23 million or 30.53% as compared to the preceding financial year of approximately RM69.52 million. The decrease in revenue was mainly attributable to the decrease in the delivery of fast-track projects in the system integration and broadcast engineering segment. For informative purpose, the fasttrack projects of the Group involve sourcing and supplying equipment to customers and are normally completed within the short span of six (6) months to nine (9) months. In addition, certain new projects, namely projects for Beacon International Specialist Centre and UOB Club Nexus, which commenced during the financial year under review were still at the preliminary stage of implementation and hence, the revenue arising from the said projects had yet to be recognised during the financial year under review. The gross profit margin for the financial year under review was approximately 17.34%, representing a decrease of approximately 22.11% as compared to the gross profit margin of the preceding financial year of approximately 39.45%. The decrease in gross profit margin was mainly attributable to lower margin recorded due to competitive pricing offered to customers of the Group for the supply of equipment for projects in the system integration and broadcast engineering segment during the financial year under review. Digistar Group recorded LBT of approximately RM11.87 million for the FYE 30 September 2013 as compared to the PBT of approximately RM9.99 million for the preceding financial year. The LBT was mainly due to the decrease in revenue and gross profit margin recorded during the financial year under review. 2

3 The NA of Digistar Group for the financial year under review was approximately RM65.69 million, representing an increase of approximately RM8.33 million as compared to the preceding financial year of approximately RM57.36 million. The increase in NA was mainly attributable to the rights issue with warrants exercise completed during the financial year under review. FYE 30 September 2014 For the FYE 30 September 2014, Digistar Group recorded revenue of approximately RM million which represents an increase of approximately RM61.42 million or % as compared to preceding financial year of approximately RM48.29 million. The increase in revenue was mainly attributable to the increase in the delivery of fast-track projects in the system integration and broadcast engineering segment. In addition, the recognition of revenue in the property development and construction segment has also increased mainly attributable to the increase in sale of units from the hotel project in Melaka, namely the Imperial Heritage Project as well as the revenue recognised from the construction of a training institute in Melaka under an 18-year concession agreement with the Ministry of Works, Malaysia ("JKR Project") which commenced construction in September 2013 and the construction was expected to be completed within three (3) years, i.e. by September During the financial year under review, the revenue recognition from the JKR Project was approximately RM23.28 million and the percentage of completion of construction was approximately 10%. For the avoidance of doubt, there was no revenue recognition from the JKR Project for the FYE 30 September 2013 as construction works only commenced at the end of September The gross profit margin for the financial year under review was approximately 25.85%, representing an increase of approximately 8.50% as compared to the gross profit margin of the preceding financial year of approximately 17.34%. The increase in gross profit margin was mainly attributable to the increase in recognition of revenue in the property development and construction segment. Digistar Group recorded LBT of approximately RM11.35 million for the FYE 30 September 2014 which represents a decrease of approximately 4.38% as compared to the preceding financial year of approximately RM11.87 million. The decrease in LBT was mainly attributable to the adoption of Interpretation Committee ("IC") 12 interpretation standard on Service Concession Arrangement for the construction segment whereby all the interest cost has been charged out instead of being capitalised. The NA of Digistar Group for the financial year under review was approximately RM74.66 million, representing an increase of approximately RM8.97 million as compared to the preceding financial year of approximately RM65.69 million. The increase in NA was mainly attributable to the private placement exercises completed during the financial year under review. FYE 30 September 2015 For the FYE 30 September 2015, Digistar Group recorded revenue of approximately RM million which represents an increase of approximately RM24.21 million or 22.07% as compared to the preceding financial year of approximately RM million. The increase in revenue was mainly attributable to the increase in revenue recognition for the construction work done for the JKR Project. During the financial year under review, the revenue recognition from the JKR Project was approximately RM90.68 million and the percentage of completion of construction was approximately 75%. 3

4 The gross profit margin for the financial year under review was approximately 11.98%, representing a decrease of approximately 13.87% as compared to the gross profit margin of the preceding financial year of approximately 25.85%. The decrease in gross profit margin was mainly attributable to lower margin recorded in the property development and construction segment due to the increase in construction cost for the JKR Project and the hotel project in the Melaka, namely the Imperial Heritage Project. The increase in construction cost was mainly attributable to the information and communication technology ("ICT") equipment and laboratory equipment purchased for installation at the JKR Project as well as the electronic system and equipment purchased for installation at the Imperial Heritage hotel. Digistar Group recorded LBT of approximately RM24.46 million for the FYE 30 September 2015 which represents an increase of approximately % as compared to the preceding financial year of approximately RM11.35 million. The increase in LBT was mainly attributable to the increase in construction cost and staff costs for the JKR Project and the Imperial Heritage Project as well as the operating costs incurred for the Imperial Heritage hotel which commenced operation since March The NA of Digistar Group for the financial year under review was approximately RM66.34 million, representing a decrease of approximately RM8.32 million as compared to the preceding financial year of approximately RM74.66 million. The decrease in NA was mainly attributable to the increase in losses recorded during the financial year under review. Three (3)-month FPE 31 December 2015 For the three (3)-month FPE 31 December 2015, Digistar Group recorded revenue of approximately RM39.49 million which represents an increase of approximately RM8.25 million or 26.41% as compared to the corresponding period in the preceding financial year of approximately RM31.24 million. The increase in revenue was mainly attributable to the increase in revenue recognition for the construction work done for the JKR Project, where the revenue recorded for the three (3)-month FPE 31 December 2015 was approximately RM33.05 million which represents an increase of approximately RM10.11 million as compared to the revenue recorded for the three (3)-month FPE 31 December 2014 of approximately RM22.94 million. The gross profit margin for the financial period under review was approximately 25.15% as compared to the gross loss margin recorded for the corresponding period in the preceding financial year of approximately 1.99%. The gross profit margin was mainly attributable to the increase in revenue recognition for the construction work done for the JKR Project. Digistar Group recorded PBT of approximately RM1.48 million for the three (3)-month FPE 31 December 2015 as compared to the LBT recorded for the corresponding period in the preceding financial year of approximately RM4.80 million. The PBT was mainly attributable to the increase in revenue recognition for the construction work done for the JKR Project, where the revenue increased by approximately RM10.11 million as compared to the corresponding period in the preceding financial year. The NA of Digistar Group for the financial period under review was approximately RM68.59 million, representing a decrease of approximately RM11.29 million as compared to the corresponding period in the preceding financial year of approximately RM79.88 million. The decrease in NA was mainly attributable to the accumulated losses of approximately RM10.23 million as at 31 December 2015 compared to the retained profit of approximately RM1.01 million as at 31 December The accumulated losses recorded as at the end of the current financial period under review is mainly attributable to the increase in LBT recorded during the FYE 30 September The increase in LBT during the FYE 30 September 2015 was mainly attributable to the increase in construction cost and staff costs for the JKR Project and the Imperial Heritage Project as well as the operating costs incurred for the Imperial Heritage hotel which commenced operation since March

5 2. How the Proposed Private Placement will create value to the Company and its securities holders? Digistar is primarily a provider of systems engineering and integration. Through its subsidiary companies, the Group is principally engaged in the provision of design, supply, installation and integration of IT infrastructure, tele-conferencing, local area networks, interactive media management systems, radio and television ("TV") news automation, telecommunication systems, integrated audio and visual systems and other related electronic systems. In addition, the Group is also involved in the provision of e-commerce, interactive pay TV services, property development, concession segment, property holding and management operations. The future plans of Digistar Group include the following:- i. Systems integration and broadcasting engineering The current principal markets and customers of the Group in this segment are local media broadcast operator in Malaysia, namely Astro, and property developer in Malaysia, namely UOA Development Bhd group. As at to-date, the number of clients of the Group in this segment amounts to 14. The Group plans to expand this business segment by servicing more local media broadcast operators as well as to expand to new markets in the Asia Pacific region, namely Myanmar and Indonesia. The estimated amount currently earmarked for the said purpose is approximately RM1.00 million. As at todate, the Group has expanded its sales team for this segment from six (6) to eight (8) personnel and is continuously seeking for new customers from local media broadcast operators and property developers in Malaysia. The Group is also continuously seeking for suitable project tenders in this segment in Malaysia. As at to-date, the Group currently has not submitted any tender for project in this segment. In addition, the Group is in the midst of conducting study on the broadcasting market in Myanmar and Indonesia as the preliminary stage of its expansion plan to the said countries which include attending exhibitions on the broadcasting market; ii. iii. Interactive pay TV, namely Haha TV The current principal market and customers of the Group in this segment are mainly hospitals in Malaysia, namely KPJ Hospital, Tung Shin Hospital, Tropicana Medical Centre and Assunta Hospital. As at to-date, the number of clients of the Group in this segment amounts to 18. The Group plans to expand this business segment locally by also targeting a niche market of residential users in condominiums, apartments and flats where the Group is able to install centralised content systems in these types of buildings. The estimated amount currently earmarked for the said purpose is approximately RM0.50 million. The Group is continuously seeking for new customers and promoting its interactive pay TV for potential customers from the hospital sector and property developers in Malaysia. The Group is also in the midst of seeking for collaboration opportunities with property developers to promote its interactive pay TV in their development projects. As at todate, the Group is currently in discussion with two (2) property developers in Malaysia for collaboration opportunities; and CMS services, namely Panther 911 The current principal markets and customers of the Group in the provision of its 24-hour Panther 911 CMS services are households and retail outlets in Malaysia. As at to-date, the number of clients of the Group in this segment amounts to 4,500. The Group plans to expand its business in the provision of its Panther 911 CMS services locally by also targeting users in commercial, industrial, warehouse, small and medium enterprises, and bank properties within Malaysia. The estimated amount currently earmarked for the said purpose is approximately RM2.00 million. As at to-date, the Group has an on-going collaboration with Telekom Malaysia to offer Telekom Malaysia customers with its Panther 911 CMS services. In addition, the Group is also in the midst of conducting marketing and advertising activities to secure new customers within Malaysia for its Panther 911 CMS services. 5

6 As set out in Section 2.6 of the announcements dated 16 February 2016 and 19 February 2016 in relation to the Proposed Private Placement, the proceeds from the Proposed Private Placement is intended to be utilised by Digistar Group for working capital and partial repayment of term loans. The proceeds earmarked for working capital and the interest savings from partial repayment of term loans is expected to assist the Group in funding its cash flow requirements in the immediate term in addition to the internally-generated funds of the Group. For informative purpose, the Group recorded a net cash outflow used in operating activities of RM million for the FYE 30 September 2015 and a net cash outflow used in operating activities of RM35.04 million for the latest unaudited quarterly results for the three (3)-month FPE 31 December As part of the Group's plans to expand its systems integration and broadcast engineering segment, interactive pay TV segment and CMS services segment, the Group requires additional working capital for marketing and advertising activities. The proceeds from the Proposed Private Placement earmarked for working capital for the purposes of repayment to trade and other creditors, and defrayment of general expenses is expected to assist the Group in meeting its payment obligations to its trade and other creditors within the credit period and the defrayment of day-to-day general expenses of the Group, which in turn is expected to support the cash outflow in the immediate term to fund the Group's plans to expand its systems integration and broadcast engineering segment, interactive pay TV segment and CMS services segment. The Group is cautiously optimistic that the aforementioned expansion plans are expected to increase the customer base of the Group and bring in more revenue to contribute positively to the financial performance of the Group. The partial repayment of the Group's term loans of RM4.00 million is expected to result in an interest cost savings of approximately RM0.28 million per annum based on the effective interest rate at 7.10% per annum. In addition, as set out in Section 3 below, the gearing of the Group is expected to reduce from 4.22 times as at 30 September 2015 to 3.40 times in the Minimum Scenario and to 2.18 times in the Maximum Scenario upon the aforementioned repayment of RM4.00 million of the Group's term loans from the proceeds from the Proposed Private Placement. The Proposed Private Placement will enable the Group to raise additional funds without having to incur interest costs or service principal payment, as compared to conventional bank borrowings. The Proposed Private Placement is also an expeditious way of raising funds from the capital market for Digistar Group's immediate use as opposed to other forms of fund raising such as a rights issue exercise which may require a longer timeframe to complete. 3. How the Proposed Private Placement will impact the Company and its securities holders? The effects of the Proposed Private Placement on the issued and paid-up share capital, substantial shareholding structure, the NA and gearing, earnings and EPS of the Group, were disclosed in Section 4 of the announcement dated 16 February 2016 in relation to the Proposed Private Placement. Based on the indicative issue price of RM0.17 per Placement Share, the Proposed Private Placement is expected to raise gross proceeds of up to approximately RM7.75 million in the Minimum Scenario and up to approximately RM10.87 million in the Maximum Scenario. The Proposed Private Placement is expected to result in the following effects:- As at 30 September 2015 Minimum Scenario After the Proposed Private Placement Maximum Scenario Issued and paid-up share capital RM46,341,282 comprising 463,412,818 Shares (including 7,372,808 treasury shares) Up to RM50,901,682 comprising 509,016,819 Shares (including 7,372,808 treasury shares) Up to RM70,315,997 comprising 703,159,970 Shares 6

7 As at 30 September 2015 Minimum Scenario After the Proposed Private Placement Maximum Scenario Current assets RM million RM million *1 RM million *1 Current liabilities RM57.03 million RM57.03 million *1 RM57.03 million *1 Current ratio 6.36 times 6.49 times * times *1 Adjusted current assets *2 RM million RM million *1 RM million *1 Current liabilities RM57.03 million RM57.03 million *1 RM57.03 million *1 Adjusted current ratio * times 4.67 times * times *1 Net assets RM66.34 million RM73.95 million RM million Gearing ratio 4.22 times 3.40 times 2.18 times Notes:- *1 *2 Figures shown are before the utilisation of proceeds. Based on the latest audited consolidated statements of financial position of the Group as at 30 September 2015, the aggregate of the Group's fixed deposits with licensed banks and cash and bank balances as at 30 September 2015 is approximately RM million, of which approximately RM million is part of the proceeds arising from the issuance of bonds by Indera Persada Sdn Bhd, a subsidiary company of Digistar. The proceeds raised from the issuance of the said bonds is and will be utilised for the financing of the construction of the JKR Project. For illustrative purpose, the adjusted current assets and current ratio shown above have been adjusted for the said amount of RM million. Barring any unforeseen circumstances, the Proposed Private Placement is expected to be completed by the first quarter of Nevertheless, the Proposed Private Placement is not expected to have any material effect on the earnings of Digistar Group for the financial year ending 30 September However, there will be a dilution in the earnings per share/ loss per share of Digistar Group due to the increase in the number of Digistar Shares in issue arising from the Proposed Private Placement. In addition, Digistar Group recorded a net cash outflow used in operating activities of RM million for the FYE 30 September 2015 and a net cash outflow used in operating activities of RM35.04 million for the latest unaudited quarterly results for the three (3)-month FPE 31 December As such, the Proposed Private Placement is expected to assist the Group in funding its cash flow requirements in the immediate term. 4. The adequacy of the proposal in addressing the Company's financial concern i.e. how the Proposed Private Placement is able to turnaround Digistar The management is of the opinion that the Proposed Private Placement is adequate to address the current funding and cash flow requirements of the Group and the financial position of the Group in the immediate term due to the following:- i. As set out in Section 2 above, the Proposed Private Placement will enable the Group to raise additional funds without having to incur interest costs or service principal payment, as compared to conventional bank borrowings. The proceeds earmarked for working capital and the interest savings from partial repayment of term loans is expected to assist the Group in funding its cash flow requirements in the immediate term in addition to the internally-generated funds of the Group. For informative purpose, the Group recorded a net cash outflow used in operating activities of RM million for the FYE 30 September 2015 and a net cash outflow used in operating activities of RM35.04 million for the latest unaudited quarterly results for the three (3)-month FPE 31 December 2015; and 7

8 ii. As set out in Section 3 above, the NA of Digistar Group is expected to increase from RM66.34 million as at 30 September 2015 up to RM73.95 million in the Minimum Scenario and up to RM million in the Maximum Scenario after the Proposed Private Placement. The gearing of the Group is also expected to reduce from 4.22 times as at 30 September 2015 to 3.40 times in the Minimum Scenario and to 2.18 times in the Maximum Scenario upon completion of the Proposed Private Placement. As set out in Section 2 above, the future plans of the Group include the plans to expand its systems integration and broadcasting engineering segment by servicing more local media broadcast operators as well as to address new markets in Myanmar and Indonesia, to expand its interactive pay TV segment locally to residential users in condominiums, apartments and flats, and to expand the provision of its 24-hour Panther 911 CMS services to users in commercial, industrial, warehouse, small and medium enterprises, and bank properties within Malaysia. The Group is cautiously optimistic that the aforementioned expansion plans are expected to increase the customer base of the Group and bring in more revenue to contribute positively to the financial performance of the Group. The proceeds earmarked for working capital and the interest savings from partial repayment of term loans is expected to assist the Group in funding its cash flow requirements in the immediate term in addition to the internallygenerated funds of the Group. Further, the proceeds from the Proposed Private Placement earmarked for working capital for the purposes of repayment to trade and other creditors, and defrayment of general expenses is expected to assist the Group in meeting its payment obligations to its trade and other creditors within the credit period and the defrayment of dayto-day general expenses of the Group, which in turn is expected to support the cash outflow in the immediate term to fund the Group's plans to expand its systems integration and broadcast engineering segment, interactive pay TV segment and CMS services segment. In addition, the Group's concession agreement with the Ministry of Works, Malaysia to carry out asset management services for a period of 15 years which involve electronic system and equipment maintenance and support services for the JKR Project, is expected to contribute positively to the earnings of the Group during the said concession period. Further, the Group's Imperial Heritage hotel, which has commenced operations since March 2015, is strategically located near the United Nations Educational, Scientific and Cultural Organization ("UNESCO") World Heritage site in Melaka town, namely the historical landmarks such as the A' Famosa Fort and the Stadthuys. The hotel is equipped with modern facilities and offers a variety of accommodation and hotel amenities packages. The hotel operation is also expected to contribute positively to the earnings of the Group going forward. Moving forward, the Group seeks to monitor closely its strategies for its future plans and strives to continuously working towards the improvement in the performance of the Group as well as to address the long term funding requirements for its working capital. This announcement is dated 11 March