CSH shares tumbled as much as 30% on Tuesday, the day after the sale was announced, falling to 4.5 sen from 6 sen, before closing at 5 sen. It shed another 0.5 sen to 4.5 sen yesterday, giving it a market capitalisation of RM62.16 million.
Investors appeared to have been disappointed that CSH disposed of an EV-related business that seemed to have good potential and in which the company had invested much time and money to build up over the past year.
The other sore point was that the disposal price of RM20 million appeared to undervalue its assets, particularly two plots of land, coupled with the lack of goodwill given the potential of its EV business and the fact it had inked a deal with the Malaysian unit of China’s EV giant BYD Co Ltd.
Since the disposal of Alliance EV was announced, CSH’s market cap has fallen to RM62.16 million, a drop of RM27.6 million, exceeding the RM20 million gained from the sale.
For a company that saw its market cap rise to as high as RM227.87 million on March 23, 2022 (share price: 16.5 sen) just after its deal with BYD was announced, this represents a massive 73% drop in its value.
The BYD connection
To recap, CSH announced in March 2022 the inking of a memorandum of understanding with BYD Malaysia Sdn Bhd, for the distribution and assembly of fully electric commercial vehicles, and to provide sales, service, spare parts and body and paint services.
The company obtained a manufacturing licence that would allow them to assemble BYD’s commercial electric vans locally just last month.
BYD Malaysia is part of Hong Kong and Shenzhen-listed BYD, a global market leader in the manufacture of both electric and hybrid cars, solar panels and batteries. BYD has a market cap of over RM739 billion.
Subsequent to the deal, CSH acquired two parcels of land in 2022:
- a 55.32-acre plot of leasehold land in Tanjung Malim for RM12 million, intended for an EV battery manufacturing plant and local commercial EV assembly plant;
- a 1.07-acre industrial plot in Petaling Jaya, valued at RM10.38 million, for a service centre and showroom.
In a Bursa filing on Monday, CSH said the indicative market value of the Tanjung Malim plot had risen to RM25 million and the plot in Petaling Jaya to RM13 million.
In other words, the indicative market value for the two plots totalled RM38 million, which far exceeds the disposal price of RM20 million.
Multiple name changes
The progress of its EV business through 2022 was a rare bright spot in an otherwise tumultuous last two decades for the company.
The Main Market-listed company had been mired in losses for 15 years. Oddly, it has gone through four name changes (KTG Bhd, and before that, DWL Resources Bhd, which was Springhill Gallery Bhd).
Last year, it shelved intentions to enter the glove manufacturing sector, having sunk a RM4 million deposit to a turnkey contractor for the production facility.
In a surprise move, CSH announced its partnership with BYD Malaysia on the very same day, possibly in a move to arrest a slide in investor sentiment.
According to its website, the group is principally engaged in retail, trading, manufacturing, exporting and marketing pottery, porcelain products, ceramic wares and ornaments, property construction, investment, and development, and financial services.
It recently changed its name to CSH which represents “Commercial vehicles, Sustainability, and Haulage Logistics”.
In its Bursa Malaysia filing on Monday, CSH pointed to the extensive financial outlay required to set up the assembly plants, procure technologies and employ the highly skilled labour required to run the facility as justification for the disposal.
The sale raises the question of why BYD would even tie up with a company with no EV credentials or experience, and without the financial muscle to set up the assembly plants, and employ the skilled labour.
Questions will also be asked why Alliance EV was not given a higher valuation.?
The big winner here may well be Hong Seng, which said it will finance the acquisition via internally generated funds. It expects the transaction to be completed in the second quarter of this year.
The company’s shares rose 0.5 sen to 22 sen at yesterday’s close, giving it a market cap of RM1.1 billion.