This article first appeared in The Edge Malaysia Weekly on June 26, 2023 - July 2, 2023

PENANG-based Ewein Bhd is changing its course as its new largest shareholder turns the property developer’s focus back to its traditional business of precision sheet metal fabrication while transforming its residential property arm into one that focuses on industrial properties.

Ooi Eng Leong, the managing director of ACE Market-listed NationGate Holdings Bhd, is now Ewein’s largest shareholder with a 43.82% stake as at June 16.

According to NationGate corporate services director Tay Seng Chew, Ooi plans to turn Ewein’s fortunes around and restore its standing as a prominent player in the two sectors.

“Ooi has outlined a new strategy that will see the mainstay businesses be precision engineering and industrial property development. The latter will focus on building factories and foreign worker hostels,” he tells The Edge in an interview.

The reinvented growth plan comes as Ooi, along with two persons acting in concert (PACs) Datuk Seri Hong Yeam Wah and Goh Kiang Teng, are making an open offer at a price of 60 sen per share to acquire all outstanding shares in Ewein. The offer values Ewein at RM181 million.

The group announced on June 14 that Ooi had triggered the mandatory takeover offer threshold after he acquired RM72.36 million worth of shares previously owned by Hijauwasa Sdn Bhd, lifting his stake to 132.17 million shares or a 43.82% stake. Before this transaction, Ooi held 3.84% equity interest. Hijauwasa is controlled by Datin Sit Chin Leng, who was holding the shares as an administrator of her late husband Datuk Ewe Swee Kheng’s estate.

At 60 sen per share, Ooi would have forked out RM79.3 million to purchase the shares. The PACs have another 6.77% shareholding in Ewein.

The offer made by Ooi and PACs is scheduled to close within 60 days of the posting date.

Tay says while the current management team will remain in place, Ewein is expected to see a reshuffle at the boardroom level, where Ooi is set to assume a non-executive role on the board as he wants to focus on managing NationGate, which made its debut on the ACE Market of Bursa Malaysia on Jan 12. Ooi holds a 65% stake in NationGate, making him the single largest shareholder.

“Ooi will focus on running NationGate, but he will be using his contacts to enlarge and grow Ewein’s business,” Tay says.

In its debut on Bursa Malaysia, NationGate surged to close at a premium of 163% and, since then, the company’s shares have run up 261% from its initial public offering (IPO) of 38 sen to close at RM1.37 apiece on Thursday.

Ewein’s board currently has five members, led by its executive chairman Ewe Lay Khim, who is the sister of the late Swee Kheng.

Meanwhile, Ooi says Ewein will soon be undergoing a name change as part of an agreement with the previous controlling shareholder of the group that the Ewein name can no longer be used. “The (Ewe) family no longer wants to run the business.”

The past three years have not been all plain sailing for Ewein, as the Covid-19 pandemic caused a sharp decrease in property sales. It also garnered unwanted attention when the late founder and former executive chairman Swee Kheng was caught in allegations of corruption in a case relating to the RM6.3 billion Penang undersea tunnel project, followed by his untimely death in the middle of the trial.

The group has maintained that neither Ewein nor its subsidiaries were involved in the project.

Ewein posted a net loss of RM476,608 in the financial year ended Dec 31, 2022 (FY2022), on lower contributions from its core property development and manufacturing divisions. This compares to a net profit of RM6.61 million in FY2021.

However, the group has started to show signs of a turnaround, earning a net profit of RM716,000 in 1QFY2023, up from RM332,000 a year earlier, as it sold more properties. However, revenue fell 20% year on year to RM7.5 million in 1QFY2023, due to lower contribution from its manufacturing segment.

The manufacturing segment accounted for 46% of Ewein’s total revenue for 1QFY2023, while the property development and investment segment made up the rest.

Ooi says Ewein’s manufacturing business made it an ideal acquisition target for him, adding that since its inception in 2006, Ewein has been highly regarded for its manufacturing of precision sheet metal fabricated parts.

“Ewein has a good reputation and good engineering quality control, but one of the drawbacks was a lack of business development. But we see the potential growth in its manufacturing segment whereby it can tap the customer base of NationGate. We are confident that we can bring quite a number of multinational customers to Ewein by the next two to three quarters,” Ooi says.

He believes Ewein will fit in well with NationGate, which is an electronic manufacturing services (EMS) provider focusing on the assembly and testing of electronic components and products to produce completed printed circuit boards, semi-finished sub-assemblies and fully-assembled electronic products as well as semiconductor devices. “Ewein can become our supplier of precision sheet metal fabricated parts, which are sourced by our NationGate customers to be used in their EMS manufacturing processes. With this, we see high potential growth in Ewein.”

Ooi, 54, has more than 34 years of combined working experience in the local electrical and electronics (E&E) industry and EMS market. 

Ooi also sees strong growth in industrial property development as its customers expand their businesses.

Tay concurs, noting that the demand for industrial properties remains strong in Penang amid the tight supply. “Also, guidelines issued by the housing and local government ministry do not allow homes and residences to be turned into hostels for foreign workers, and that they should be housed in proper commercial premises. As demand for foreign workers will continue to grow for the next five to 10 years, we are positioning Ewein in high-growth areas.”

He says the group may seek to raise funds from the capital market to help finance its land acquisition. “That is the cheapest source of funding compared with bank borrowings. However, this is still being worked out. We will go for the one that will work best for the stakeholders.”

As at March 31, 2023, Ewein was in a net cash position of RM43.92 million.

“We have identified a few [land bank] sites [to acquire]. So far, the tracts are located in Penang, but that doesn’t limit us to Penang as far as industrial properties are concerned. We will look at any good deals that come by. If the [listing] rules permit, we want to work very fast,” says Tay.

Of the 500 units available, about 100 are still unsold at Ewein’s RM800 million City of Dreams luxury serviced apartment project located between Tanjung Tokong and Gurney Drive in Penang, which was completed in September 2020. Prices for the units start at RM1 million.

Tay says the pandemic dampened activity in the high-end property market in the last few years. “We are seeing a pickup in the market. So as and when buyers come in, we will see revenue generated [from City of Dreams] until the last of the stock.” He estimates the unsold units to be worth a total of RM100 million.

Ewein’s real estate assets include Menara IJM Land in Penang, which comprises a piece of land with a 16-storey office building and 7-storey car park covering a land area of 46,823 sq ft and net lettable area of 94,594 sq ft. Ooi estimates Menara IJM Land’s value at about RM70 million. Ewein also owns a townhouse in Penang with a land area of 3,337 sq ft and a 571 sq ft serviced apartment in Royal Mint Gardens, London. The estimated book value of the two properties as at Dec 31, 2022, was RM3.3 million and RM3.57million respectively.

Tay says the group is looking to dispose of these assets, although it is in no hurry. “We are looking for buyers. But, definitely, we are not under stress to sell them. Except for the precision engineering business, we hope to sell the properties at above book value. They don’t fit into our long-term plan.”

Ewein currently operates its manufacturing facility in Seberang Perai Tengah, Penang, which had a book value of RM8.8 million as at end-2022.

Ooi says the group plans to invest RM5 million to RM10 million to increase the overall capacity and also to enhance its precision engineering capabilities. It will also beef up its manpower from 100 workers currently.

“We are looking to undertake an extension of the facility. We need to renovate the factory because it is quite old. We are also targeting to increase the number of workers and purchase additional machinery so we are able to take on more orders,” he says. The plant is currently running at about 20% capacity utilisation.

Ooi’s growing focus on the precision engineering business is in sharp contrast to the overall E&E industry’s much slower pace of growth at home. He believes the pullback in the sector is temporary because of concerns over the ongoing US-China trade war. “I believe by 3Q and 4Q, purchase orders from customers will come back and, in fact, there will be more orders.” He sees tremendous potential for growth in the precision engineering segment over the next 10 years, driven by players out of China. “This is a good time to relook at this segment again.”

Meanwhile, NationGate is keeping to its internal guidance of a 20% to 30% net profit growth in the financial years ending Dec 31, 2023 and 2024 (FY2023 and FY2024), notwithstanding that in 1QFY2023, it reported a lower net profit due to lower demand in the overall E&E industry. In the group’s latest quarterly announcement on May 24, NationGate posted a net profit of RM13.29 million for 1QFY2023, which was lower than the RM16.7 million recorded in 1QFY2022, says Tay.

“If we were to include the listing expenses of RM3.79 million, NationGate would have recorded a net profit of RM17.08 million in 1QFY2023, which is a 3% year-on-year growth,” he points out.

He adds that NationGate would have also outperformed the industry, which contracted by 20% to 30% in 1QFY2023.

Shares of Ewein have risen 39% following the takeover cash offer price of 60 sen to close at 83.5 sen last Thursday, giving the company a market value of RM251.8 million.

Ooi says he will not increase his take­over offer for Ewein as he intends to maintain the listing status of Ewein on the Main Market of Bursa Malaysia. 

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