KUALA LUMPUR (Dec 19): Main-Market listed Lotus Circular Bhd (KL:LOTUSCIR) is acquiring two waste recycling companies — Earthwise Resources Sdn Bhd and Expert Resources Management Sdn Bhd — controlled by its director and major shareholder Datuk Wong Sak Kuan for RM100 million, to expand its footprint in the business.  

Formerly known as MESB Bhd, Lotus Circular is paying RM68 million to buy Earthwise from Lotus Essential Sdn Bhd (LESB), which is 99%-owned by Wong, and RM32 million to take over Expert Resources, which is 55%-owned by Wong.

Wong is currently the largest shareholder with a 26.62% stake in Lotus Circular. Besides waste recycling, Lotus Circular is involved in the trading and retailing of leather products, apparel and accessories.

The collective price tag exceeds Lotus Circular's market capitalisation, which stood at RM63.5 million, based on its Thursday closing price of 44 sen.

Lotus Circular will pay for the acquisitions with a combination of cash — RM35.01 million, sourced from the company's internal funds or bank borrowings — and new shares, according to its bourse filing on Thursday.

Lotus said the purchase prices for the companies were determined after taking into account the earnings potential of the two companies, the outlook of the waste recycling industry, and a combined two-year profit guarantee of RM16 million from the two companies for the fiscal years 2025 and 2026.

This profit guarantee translates to an implied price-to-earnings multiple of 12.5 times, based on an average annual profit guarantee of RM8 million, Lotus Circular said.

On completion of the acquisitions, Wong's stake in Lotus Circular, including his stake in LESB, will increase to 57.31%. The collective shareholdings of Wong, LESB and the persons acting in concert with him will rise to 70.6% from 38.7%.

Wong and the PACs will seek an exemption from the Securities Commission Malaysia (SC) from having to make a mandatory offer to take up the remaining stake in Lotus Circular that they do not own, provided approval from non-interested shareholders of the company agree to it at an upcoming extraordinary general meeting.

Both Earthwise and Expert Resources have demonstrated consistent profitability in recent years, according to Lotus Circular. For the fiscal year of 2024, Earthwise recorded a profit after tax (PAT) of RM571,786 while Expert Resources posted a PAT of RM2.94 million.

The company expects to complete the acquisitions by the second quarter of 2025.