KUALA LUMPUR (July 29): Integrated engineering solutions provider Kelington Group Bhd (KL:KGB) is acquiring the remaining 9.29% equity interest in industrial gas player Ace Gases Sdn Bhd for RM35.69 million in a related party transaction.

Kelington had entered into a conditional share sale agreement with Palace Star Sdn Bhd, Chong Ann Tsun and Alan Lim Chui Boon for the proposed acquisition of the stake, comprising 2.54 million shares in Ace Gases.

The cash and share deal is deemed a related party transaction, as Palace Star is the largest shareholder of Kelington with a 20% stake, while Chong is the chief executive officer of Ace Gases, and Lim is the operations director.

The purchase consideration of RM35.69 million will be satisfied via a cash consideration of RM10.07 million cash and issuance of 7.59 million new shares in Kelington at RM3.37 per share. Shares in Kelington closed up two sen or 0.6% at RM3.35 on Monday, valuing the group at RM2.28 billion based on its existing issued share capital of 676.76 million shares.

The cash consideration will be accrued entirely to Palace Star, while Chong will receive 6.45 million Kelington shares and Lim 1.14 million Kelington shares. The cash consideration will be financed entirely via internal generated funds, Kelington said.

Obtaining full control of Ace Gases, Kelington said, will provide greater flexibility in the planning and implementation of long-term strategies for the company's business and services, enhancing its growth potential.

"In view of Ace Gases' financial performance in recent years and its diverse geographical market coverage, Kelington may have the potential to pursue additional growth opportunities within the industrial gas industry," it said in a filing with Bursa Malaysia on Monday.

Ace Gases is principally involved in the manufacturing, supply, import and trading of industrial gas, and the provision of industrial gas solutions.

According to Kelington, the company's main target market are local and overseas customers who primarily comprise of manufacturers (beverage bottlers and chemicals manufacturers), industrial companies (construction companies and oil and gas companies), and commercial businesses (airlines and food and beverage) that utilise industrial gases, specialty and electronic gases, and industrial gas systems to support their daily operational processes, manufacturing activities and industrial applications.

Industrial gases are gaseous substances that are used in a wide range of industries for various industrial applications, comprising industrial and manufacturing processes, to facilitate the processes or be used as raw materials.  

For the financial year ended Dec 31, 2023 (FY2023), Ace Gases booked RM19.20 million in profit after tax (PAT), up 22% from the previous year's PAT of RM15.73 million, as revenue rose 45% to RM120.89 million from RM83.20 million previously. Cash flow from operating activities more than doubled to RM26.92 million from RM10.68 million in FY2022.

The proposed acquisition is expected to be completed in the second half of 2024.

UOB Kay Hian has been appointed to act as the adviser for the proposed acquisition.

Shares of Kelington have been rising since November last year. From around RM1.50 at the time, the counter's rise to RM3.35 on Monday represented an increase of 123%.