KUALA LUMPUR (Feb 2): ACE Market-listed SCH Group Bhd is entering the event equipment supply business segment to diversify its earnings base and enhance its top and bottom lines.

The group today signed an agreement with Hextar Holdings Sdn Bhd to acquire the entire equity interest in TK Tent & Air-Conditioning Rental Sdn Bhd for RM50 million.

This will help diversify SCH's income stream which is currently mainly derived from the quarry equipment business and is dependent on the cyclical nature of the construction industry, the group said in a stock exchange filing.

It added that by acquiring TK Tent, the group’s operations can be expanded to achieve certain economies of scale, in terms of pooling of resources to increase overall operating efficiencies and productivity levels.

The purchase will be funded through bank borrowings (70%) and a private placement (30%) which was announced on Jan 8, SCH said.

Incorporated in 2010, TK Tent provides event-related equipment rental for, and the trading of, temperature control systems, energy products or equipment, and other equipment such as furniture, portable toilets and decoration.

Its event equipment is mainly used by trade fairs, exhibitions, office buildings, conventions and national level events held in Malaysia and other parts of Asia.

SCH said the deal comes with a profit guarantee of at least RM15.5 million in aggregate profit after taxation for the financial years ending June 30, 2018 to 2020, which are expected to contribute positively to earnings of the enlarged SCH group for at least the next three years.

The acquistion, it added, is expected to contribute more than 25% of its net profit and net assets.

In view of the profit guarantee, SCH intends to offer up to 60 million new shares for the subscription by Hextar Holdings or its related parties.

"The board is of the view that the participation of Hextar Holdings as a strategic investor will align the interest of [it] to be mutually beneficial to the SCH group," said SCH.

The acquisition is expected to be completed by the second quarter of this year, said SCH.

SCH's share price closed two sen or 9.3% up at its intra-day high of 23.5 sen, valuing the group at RM96.88 million. The counter saw 10.32 million shares changing hands, versus its 200-day average volume of 1.56 million shares.