KUALA LUMPUR (Aug 2): Oil trading and fuel bunkering service provider Straits Energy Resources Bhd (KL:STRAITS) plans to exit the port operation and management business by disposing of its entire 51% equity interest in Megah Port Management Sdn Bhd (MPM), the concessionaire of Labuan Liberty Port, to LPM Holdings Sdn Bhd for RM5 million cash.

Straits Energy said by divesting its stake in MPM, the group can concentrate on fewer operating entities, and improve its overall operational efficiency and effectiveness.

"The Straits group wishes to place its strategic focus on its core business activities — oil bunkering and shipping related services and telecommunications and network services. By divesting a subsidiary that operates outside its main strategic focus, the management can streamline the operations and improve the overall performance of the group," it said in a filing with Bursa Malaysia on Friday.

The original cost of investment by Straits Energy for the equity interest in MPM was RM1.53 million in February 2020. The expected gain arising from the proposed disposal is RM3.3 million.

Straits Energy said its wholly owned subsidiary Straits Port Management Sdn Bhd (SPM) had entered into a conditional share sale agreement (SSA) with LPM and MPM for the proposed disposal of 1.53 million shares or a 51% stake in MPM. The remaining 49% stake in MPM is held by LPM, where MPM chief operating officer Datuk Seri Patrick Tiong Chiong Kui is the sole director, while Sailion Shipping Sdn Bhd is the sole shareholder.

The conditions of the SSA include LPM and MPM procuring all securities and guarantees provided by SPM and its related corporations, and for their directors to be released and discharged on terms and conditions acceptable to SPM. These include the release and discharge of the corporate guarantee provided by Straits Energy in favour of HSBC Bank Malaysia Bhd to secure bank facilities granted to MPM, and the joint and several guarantees provided by Straits Energy and its group managing director Datuk Seri Ron Ho Kam Choy in favour of Pac Leasing Bhd to secure hire purchase facilities granted to MPM.

"MPM commenced operations in April 2020, and based on its financial position, it has not shown much growth in its business revenue over the past three years. In addition, from a net profit position of RM951,857 in the financial year ended Dec 31, 2021 (FY2021), it deteriorated to a net loss position of RM493,166 in FY2023," it added.

Straits Energy attributed the underperformance of MPM to the non-alignment of policies between the federal and state governments, and also due to the regional geopolitical developments that affected the traffic flow of ships to Labuan Liberty Port.

It will use the cash proceeds from the proposed disposal for other projects or working capital.

"After the completion of the proposed disposal, Straits Energy will no longer be operating in the port operation and management business, and therefore, Straits Energy will exit from this business segment. The proposed disposal is not expected to have any material effect on the group's earnings."

Barring any unforeseen circumstances, the proposed disposal is expected to be completed by the fourth quarter.

Straits Energy shares closed down half a sen or 3.85% at 12.5 sen on Friday, giving the group a market capitalisation of RM124.3 million. The stock has risen 4.17% so far this year.