Business

Saturday August 1, 2009

Weaving value

By TEE LIN SAY


China’s Be Top Group plans to transform John Masters Industries

JOHN Masters Industries Bhd (JMI) took many by surprise a month ago by offering its assets and liabilities up for sale via a competitive tender. This it had to do, citing the challenging outlook and its thinly-traded shares. The company decided that the best way to return money to shareholders was via a capital repayment.

In an interesting twist of events, China textile group Be Top Group Ltd is set to be the fourth Chinese company to be listed on Bursa Malaysia under a plan to acquire JMI in a reverse takeover exercise valued at RM328.1mil.

For starters, Be Top is providing a profit guarantee of no less than 100 million renminbi (about RM51mil) for the financial year ending 2009. Once acquired, JMI will be transformed into a China-based manufacturer and have an array of textile products rather than garment brands.

Judging by the way JMI shares were traded upon the lifting of its suspension on July 29, (its share price was up 17.5 sen to 91 sen) shareholders obviously like the deal.

“It was pure luck that this deal came about. The first negotiation took place on June 23rd. The international arranger, Construction Bank of China, brought the companies together and everything just clicked,” says deal advisor, Astramina Advisory managing director, Wong Muh Rong.

At face value, shareholders get cash from a capital repayment, and have the opportunity to re-invest in a transformed entity.

Under the reverse takover plan, JMI will first sell its clothing and property businesses to its major shareholder Yoon Foong Garments Sdn Bhd for RM78.5mil, with the proceeds to be distributed to shareholders under a capital repayment plan.

Be Top, the holding company of Chinese fabric maker Top Textile (Suzhou) Co, will be injected into JMI. JMI will issue new shares and convertible bonds and make a rights offer to acquire Be Top. Be Top’s owners, brothers Pan Ding and Pan Dong, will collectively own more than 51% of JMI after the deal.

The existing JMI shareholders will be given priority to invest in the new JMI group via a renounceable rights issue.

The takeover exercise involves an issuance of 780 million new shares at 20 sen per share and RM172mil of convertible bonds.

The rights offer involves 307 million shares on the basis of 10 rights shares for every one held, at an indicative price of 20 sen per share.

The owners of JMI, the Ho family will undertake to subscribe for its portion which is at least RM27mil in new rights shares.

The entire exercise is expected to be completed by the first quarter of 2010, with the capital repayment and disposal to be done by the fourth quarter.

Be Top specialises in the production of customised woven loom-state fabrics made from cotton, synthetic and mixed yarn. Its customers are garment manufacturers, fabric printing and dyeing companies, fabric wholesalers, trading companies and fabric procurement agents.

It exports to the US, Russia, Mexico, Belgium, France, India, Hong Kong, Bangladesh and South Korea. Products of Be Top Group are also procured by well known chain stores such as Wall Mart, K-Mart, JC Penny, Sears from the US, Marks & Spencer from the United Kingdom and H&M from Sweden among others.

Its garments are also used in well known China brands such as Hongdou, Septwolves and Jiumawang.

Last year, Be Top posted a net profit of RMB80 million on a RMB350 million revenue. This roughly translates to some 35 million metres of cloth production. Presently, 85% of its revenue is generated from the China market while the rest comes from the overseas market.

Since its inception in 1999, Ding says the company has grown at an average of 20% per year. While size wise, it may be small in China, it is the largest garments manufacturer in Suzhou.

It currently has 15 distribution centres in the textile areas of Shanghai, Fujian and the Jiangsu area among others. It plans to set up distribution centres in Beijing and Guangdong.

Due to overwhelming demand from the domestic market, Be Top’s factory runs at 100% capacity 24 hours a day, and 365 days a week. Be Top also plans to make inroads into the premium garment market.

“Nowadays, people in China are getting very image conscious. Gone are the days where people buy their clothes once a year. There may be a recession going on in the world, but not in China. China brands are now coming up,” says Dong.

“Over the next two years, we are targeting the China general public. Our domestic market is very large. We want to be the leader in new technology fabric,” says Ding.

On this note, Be Top is likely to introduce its ‘Memory cloth’, anti static and anti radiation cloth to the market soon.

The cloth is unique as no matter how rumple it gets, it has the ‘memory’ to return to its original format – which is to be smooth and crease free.

Dong says that its anti radiation cloth will be targeted to working people who are always in front of the computer, as well as pregnant women.

These materials are fully developed by Be Top’s own technology. With the capital from JMI’s reverse takeover, Be Top hopes to spend approximately RMB70mil to RMB80mil to acquire more machineries for its factory.


JMI : [Stock Watch] [News]

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