Cape EMS said in a bourse filing that EPF sold the shares on Aug 15, trimming its stake to 4.44% from 5.04%, below the 5% threshold for substantial shareholder status.

EPF had acquired 3.5 million shares in the electronics manufacturing services (EMS) firm at the end of last month, when it hit its then all-time low of 71 sen.

Between the time EPF bought the 3.5 million shares on July 26 to its disposal on Aug 15, when it closed at 43 sen, the share price has plunged almost 40%.

Cape EMS, listed on Bursa Malaysia in March 2023 at an IPO price of 90 sen, has tumbled 57% in the past month and hit a new all-time low of 40 sen on Tuesday.

EPF is not the only substantial shareholder to dispose shares recently. Managing director and group CEO Christina Tee, 57 – the company’s largest shareholder – has also slashed her holdings in multiple transactions since the beginning of the month.

The company’s bourse filing on Aug 9 revealed that Christina, who founded the company, disposed a total of 27.98 million shares a day earlier, dropping her stake to just 11.16%.

This was dwarfed by the 112.74 million shares that she disposed in a series of transactions on Aug 6. She also sold two million shares on Aug 1, and 3.07 million shares on Aug 5.

At the end of last month, she held a 38.05% stake while her sister and executive director Ivy, 47, had a 6.81% stake. This means that Christina’s equity interest has fallen by over 300 million shares in the past three weeks.

She currently holds 110.38 million shares, or an 11.13% direct stake, according to the latest filings.

It is likely that her share disposals were prompted by margin calls, given the steep fall in the share price in the past month. It is believed that other shareholders also received margin calls that triggered forced selling of shares pledged to brokers and financial institutions.

Red flag for investors?

A potential red flag that may have spooked investors has been the group’s acquisition of US-based iConn Inc in late January. The downward spiral in the company’s share price started a few weeks later.

iConn specialises in virtual manufacturing services such as design for manufacturing, engineering, and sourcing complements.

Cape EMS forked out US$16.5 million (then RM76.6 million) for the acquisition which came with a profit guarantee of US$8 million for three years between 2024 and 2026.

However, Cape EMS’ statement for its quarter ended March 31 (Q1 FY2024) revealed it had booked goodwill on acquisition amounting to RM79.45 million for the takeover.

Despite the precipitous drop in its share price, it can be argued that Cape EMS remains a fundamentally sound enterprise.

For Q1 FY2024, net profit surged 58% to RM13.41 million from RM8.5 million a year ago. The substantial rise in profit was attributed to better performance from both its industrial and consumer segments. Quarterly revenue rose more than 12% to RM154.48 million from RM137.35 million

For the second quarter ended June 30 (Q2 FY2024), its net profit fell 42.6% to RM8.7 million from RM15.16 million a year ago.

However, in a statement yesterday, the group touted the record quarterly revenue of RM166.6 million, a 36.8% jump from RM121.8 million a year earlier. It stated this growth reflects increasing demand for its services.

“It is driven by stronger contributions from both industrial and consumer electronic products under the EMS segment, particularly in wireless communication equipment, electronic cigarettes, light electrical vehicles, and the newly acquired iConn.”

Despite the robust revenue growth, the group said it faced “several interim cost challenges” such as increased freight expenses mainly due to port congestion, mobilisation costs for its battery pack manufacturing line, and installation costs for an energy saving cooling system.

It also said that revenue, predominantly denominated in US dollars, was adversely affected by the ringgit’s strengthening against the greenback.

As at June 30, 2024, it had cash and cash equivalents of RM162.2 million, a low net gearing ratio of 0.03 times and net assets per share of 48 sen.

Headquartered in Senai, Johor, Cape EMS specialises in contract electronics manufacturing, box build and full turnkey projects, as well as total supply chain management. It has two factories in Johor and a testing facility in Singapore.

Its shares closed 6.3% or 2.5 sen higher at 42 sen yesterday, giving it a market capitalisation of RM421.6 million.