This article first appeared in The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024

EKUITI Nasional Bhd (Ekuinas) is said to be among the suitors that are keen on buying a stake in Johor-based electronics manufacturing services provider Cape EMS Bhd (KL:CEB), whose founder has sold a substantial portion of her stake, according to sources.

“In the past few months, there have been a few suitors looking to take up a block of shares in Cape EMS, after its share price was battered down. The latest one is said to be Ekuinas,” a source says.

In an email reply to The Edge, Ekuinas acknowledges that there has been market talk of the private equity firm and Cape EMS, but declines to comment further on the matter.

“We are aware of market speculation regarding Ekuinas and Cape EMS. As a private equity firm, we continuously explore acquisition opportunities. However, there is nothing further to share at this [point of] time,” it says.

Another source says Creador founder Brahmal Vasudevan was also interested in Cape EMS, but the deal didn’t go through. “Brahmal wanted to take Cape EMS private. That discussion happened one or two months ago,” says the source.

Cape EMS group CEO and managing director Christina Tee Kim Chin declined to comment on the matter when contacted, explaining that she is currently in a “lock-in period” as there will be a board of directors meeting on Nov 19.

Tee remains the company’s single largest shareholder after she reduced her stake in Cape EMS to 11.13% from 38.05% previously as a result of margin calls. She had pledged most of her shares, if not all, to stockbrokers.

When asked who has bought her over 300 million shares (26.9% equity interest), Tee says the shares were picked up by retail investors on the open market.

In August, the Employees Provident Fund also trimmed its stake in Cape EMS to 4.44% from 5.04%.

Cape EMS’ share price has been battered down badly since July. The stock fell to an all-time low of 31 sen last Friday — barely one-fifth of its peak of RM1.50 in April last year. At 31 sen, Cape EMS has a market capitalisation of RM307.52 million and forward price-earnings ratio of 7.75 times.

It was reported that financial misguidance by the management to some institutional investors was the main trigger for the selldown. This was followed by margin calls on Tee.

For the second quarter ended June 30 (2QFY2024), Cape EMS posted a net profit of RM8.70 million, a 43% year-on-year decrease from RM15.16 million, despite a 37% growth in revenue to RM166.57 million from RM121.78 million a year ago. The company attributed the contraction in earnings to thinner margins due to exclusion of sales from thermal energy devices and increase in freight costs.

Furthermore, Cape EMS booked an impairment loss on trade receivables of RM2.2 million. The company also blamed the strengthening of the ringgit against the greenback for its lower earnings.

For the first half of FY2024, its net profit fell 6.57% to RM22.11 million, from RM23.66 million a year earlier, while revenue expanded 23.9% to RM321.05 million, from RM259.13 million.

The company is due to release its 3QFY2024 results by end-November.

“I think we shouldn’t have pledged our shares for margin,” Tee tells The Edge in an interview prior to the Ekuinas revelation.

“Many of the [institutional investors] think that I’m losing control of the company because of the reduction in my shareholding, which I’m not.”

Cape EMS made an impressive debut on Bursa Malaysia’s Main Market on March 10, 2023, opening at a premium of 52 sen or 57.8% over its initial public offering (IPO) price of 90 sen. The listing exercise raised RM155.7 million.

Acknowledging that some mistakes were made during its listing process, Tee shares that the proceeds raised from the exercise were insufficient to even cover its bridging loans.

Tee says she was advised to secure the bridging loans as she had to carve out some of the businesses in the company for the IPO, maintaining only the manufacturing business in the listed company.

“These are all part of the learning curve, but it was an expensive lesson that we learned,” Tee says.

However, the founder stresses that her financial loss is not her primary concern as her focus remains on the company’s business strategy and resilience.

“I always ensure that my finance team is very independent, because they know that I’m always focusing on business strategy,” she says. “Then this thing happened. To me, I told them money is not the most important thing in my life. Now, already three months, I lost [a lot of] the shares, but I’m still alive.”

Tee tells The Edge that she plans to restructure the business by clearly separating the corporate finance team from the business team, with the aim of improving the effective management of the company as well as making a clearer distinction in roles and responsibilities within its corporate structure.

The CEO defends the company’s acquisition of US-based electronic manufacturing services player iConn Inc last year, which drew criticism from its own institutional investors.

Cape EMS had conducted a private placement of 69 million shares to raise RM73.83 million, at RM1.07 per share, for the acquisition of iConn.

The company paid US$16.5 million (RM76.6 million) to take over iConn. The deal came with a profit guarantee of US$8 million for three years between 2024 and 2026.

“We wanted to move up the value chain, that’s why we acquired iConn. And then they said that I’m buying an empty shell. This company has 18 years [of experience] in engineering and in the digital platform,” Tee says.

Moving forward, Tee says Cape EMS is working towards being an asset-light company, although much of the plans cannot be shared yet pending the board’s approval.

“Of course, we are somehow affected by the currency changes and the cost increases. But we just want to say that the company remains strong, that’s all,” she adds.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.