Business

Saturday November 26, 2011

Harvest’s volatile journey

By B.K. SIDHU
bksidhu@thestar.com.my


NOT an unknown counter to stock market circles anymore, timber door maker Harvest Court Industries Bhd captured the imagination of punters and market watchers for its meteoric but volatile ride over the past month.

Much of the buzz surrounded the entry of two relatively low-key individuals property developer Datuk Raymond Chan from Penang who made his fortune in Sabah and Nazifuddin Najib, the Prime Minister's son.

The share price reflected the common expectation of such an appointment, whereby punters might have thought that the duo will be able to open doors for the company to bag lucrative future jobs.

Any basis for that, however, was not the case, Chan says.

“There are no government contracts, purely private jobs,” he tells StarBizWeek earlier in the week.

“We have no intention of injecting assets into Harvest, only to award it contracts.”

To pour cold water over the frenzy surrounding the stock, Chan says he does not expect any immediate upside in the company's stock price.

Instant chemistry

Penang-born Chan has dabbled in the property sector for more than a decade now. He was involved in the management of multi-dwelling units in Penang before he packed his bags for Kota Kinabalu over a decade ago.

There he started property companies Ramajuta Properties and Sagajuta (Sabah) Sdn Bhd. Adding to his portfolio is the 1Borneo project which is located 7km from Kota Kinabalu. It has there where Chan got his break.

“It is not easy to do that, it is a bit like Mid Valley Megamall, but something he delivered,” says Nazifuddin at the same interview.

Nazifuddin, 28, is the Prime Minister's second son. He was involved in banking in Hong Kong before deciding to return to his homeland two years ago.

The two met sometime last year and Chan can't seem to remember the exact details when they met but says “we just clicked” and the rest is history. Both have since become partners after Chan invited Nazifuddin to join Sagajuta. Chan has a 30% stake in Sagajuta, Nazifuddin has 10% and the rest is held by individuals. Nazifuddin is the executive chairman of Sagajuta while Chan is a director.

Chan says the shares Nazifuddin has in Sagajuta were not given free to him. “He paid for them.”

Nazifuddin says Chan “is a good entrepreneur and has a lot of potential in running the business and expanding it. His track record of building 1Borneo shows he is capable of delivery. He is also young and the collaboration works.”

Chan describes himself as an easy going man and delivers when he puts his mind on something. “I am pro-active and objective-minded and don't like to dwell too much or else nothing moves.”

Entering Harvest

The meeting with Harvest major shareholder Ng Swee Kiat was a chance meeting in mid-September when Chan was sourcing for building materials for the 1Gateway project in Klang. His project manager suggested they check out Harvest for deliverables.

Ng was then caught in a bind over the 18.3% put option imposed by Affin Bank Bank. He had a 16% stake in Harvest and when combined with the 18.3% from the put option,

Ng would have triggered a general offer for the remaining shares in Harvest, something he could least afford and was trying to avoid. Ng took the opportunity to ask Chan if he was keen to invest in Harvest.

At that point, Chan was facing a roadblock in a deal for a reverse takeover of Jernih Asia Bhd.

“The timing was such that we had just mutually terminated the Jernih Asia deal and I felt that the market perceived something is wrong with me.

As damage control, I felt getting into Harvest would be good. More so, it could be a fit for all our projects,” he says.

Chan proceeded to buy a 13.83% stake from Ng and the rest from the open market to make it to 15.7%. Nazifuddin collected his portion of 2.2% from the open market at prices ranging from 80 sen to RM1.50 a share.

The rise and fall

Before the entry of both Chan and Nazifuddin was announced, Harvest shares jumped. Whether it has any bearing to the family association of Nazifuddin or the potential opportunity for government contracts or other large contracts is unclear but the market got worked up over the stock. The share price gobbled up mileage as it raced upwards, in the process spawning a penny stock rally. The rally started to run out of gas once the authorities took more notice and issued frequent queries and advice to investors.

Harvest shares were the first in the recent penny rally to be classified a designate stock.

Chan's contention is that Bursa acted too fast to designate the counter. He claims that it did not allow investors time to digest the news. Bursa believes it had given sufficient warning and it was following procedure. Still, Chan says they could have waited to allow the share price to adjust itself. To be a designated counter means any purchase of its shares can only be made by cash paid upfront.

He claimed that the analyst fraternity was also quick to make comparisons with other stocks that had been designated previously, where after designation, the share prices normally fell flat.

“We do not want the share price to go up so fast. It should be based on fundamentals. People don't think straight when investing in a euphoria. We are concerned,” Chan says.

Nazifuddin claims “nobody has made millions from the counter.”

Harvest is a smallish timber processing company which reported a RM2.8mil net loss for the full year 2010 on the back of RM6.4mil sales. For the first half of its current year, its loss was RM671,000 on the back of RM6mil sales.

The stock's year-low was eight sen and after they entered, the stock went up 27 times to RM2.14. But after the designation, it has fallen since and on Friday it shed 14 sen to 97 sen.

RM1.2bil poser

There is usually much scepticism when a company announces it has signed a memorandum of understanding or it received a letter of intent. Both documents are not legally binding.

Similar doubt was cast when Sagajuta issued a letter of intent (LOI) for RM1.2bil worth of construction contracts to Harvest. Many were not sure if it was a ploy to defend the company's share price after designation of the stock was made the day before.

Chan claims his intention for the LOI was clear and Harvest, being in his stable of companies, would get the construction job.

“If the interpretations have raised concerns, we will rectify the situation and award them instead,” says Chan. Then there is the question of expertise. Harvest is a door maker, not a builder. How can it make things happen?

“We will assign our entire project team at Sagajuta to Harvest to make things happen,” he says. It does not end there.

The door maker needs to get shareholders' approval to get a new core business and that can be tricky when an EGM is called.

“Since this is going to create new revenue stream for the company, we do not see why shareholders should want to block it,” Ng says.

The odds are still against Harvest and whatever move they make will be watched very closely by all parties. “We are not discouraged. We take it as a challenge,” Nazifuddin says of the episode of Harvest. But he would certainly think twice before making big moves in the corporate world for he rather remain low key for some time. For now he just wants to see the 1Green Envior project take off and has resigned as director of Harvest.

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