Published August 25, 2009

Is Ban Joo capable of doing an L&M?

By VEN SREENIVASAN
Email this article
Print article
Feedback

IS TROUBLED textile player Ban Joo & Co being lifted to new recent heights by a growing reverse takeover (RTO) fever gripping the market? Some market watchers seem to think so. And they may be right.

With the China stock fever largely in deep freeze, and most blue chips and bellwethers almost fully valued following a four-month rally, market players seem to be gravitating towards second-liners and penny stocks with corporate development stories, or at least the potential for it.

At its closing price of 10 cents yesterday, Ban Joo was at its highest levels since November 2007. The stock, which has risen 43 per cent in a week, was the third most actively traded counter on the bourse yesterday, with some 108 million units changing hands.

What makes this all the more remarkable is that this company has been under the Watch-List of the Singapore Exchange (SGX) since December 2008.

The SGX places mainboard-listed companies on its watch-list if they record pre-tax losses for the latest three consecutive fiscal years and an average daily market capitalisation of less than $40 million over the last 120 trading days. Companies face the risk of being delisted if they are unable to return to the black or do not have enough market capitalisation within two years of being on the watch-list.

For the financial year ended Sept 30, 2008, Ban Joo's net loss widened to $17.4 million from $15.05 million due to impairment on trade and other receivables, fair-value losses, forex losses and interest expenses. But for the nine months ended June 30, 2009, it recorded an unaudited net profit of $1 million, a reversal from a net loss of $6.6 million during the nine months of the previous year. This was due to proceeds from the disposal of its four shoplots on Circular Road.

Despite being just a shell company, Ban Joo has cash of some $26 million as at end-June 2009, thanks to the sale of assets and the funds raised in a share placement.

The inspiration for the punt on Ban Joo could be recently relisted Seroja Investments, the new 'avatar' of previously debt-laden L&M Investments.

The civil engineering company went under judicial management in January 2006, and has since been resurrected as an offshore and energy play controlled by Indonesian interests. But since re-listing on Aug 17, Seroja has been one of the hottest stocks, closing at 45 cents on its debut, climbing steadily through last week, then jumping to 71.5 cents yesterday. And on high volumes.

There are parallels between the two companies: A virtually busted business being taken over by well-connected Indonesian parties who are injecting new assets and businesses which have no resemblance to the previous ones.

Indeed, Ban Joo recently made a barely noticed announcement that it was exiting the difficult textile industry to 'invest in profitable businesses'. It added that it was in the 'final stage of an acquisition' which will facilitate its return to profitability within two years from Dec 31, 2008.

The acquisition target is Telemedia Pacific Inc, a company which has started building an Asian undersea fibre-optic cable network. Ban Joo revealed it was in the process of conducting the due diligence with SMA Investment Holding Ltd and PT Setya Mukti Abadi Indonesia, in line with a previously announced memorandum of understanding in April this year.

Following the 'acquisition' of the new business and restructuring, Ban Joo will re-emerge as Telemedia Pacific Corp Ltd.

The market seems to be betting Ban Joo could 'do an L&M'.

It remains to be seen if this can happen.

For one thing, Ban Joo's restructuring is still a work-in-progress, though the company appears confident it will be a done deal. Also, Ban Joo is not as well known a brand name as L&M, though much of the latter's publicity in 2006 was not particularly flattering.

Meanwhile, there is vague market speculation that the restructured and renamed company's first major undersea cable customer could be a well-known Hong Kong-based telecoms player.

This heady combination of impending Indonesian control, potential Hong Kong clientele and a current Singapore listing has made Ban Joo one of the hottest plays on the local market.

Let's hope no one gets burnt.