AHB ... Feb11

Some 10 years ago, the major shareholders had make good promise of a profit guarantee to the minority shareholders.

The shortfall in profit guarantee came about in 1996 when the company embarked on an initial public offering. After failing to meet the profit guarantee, the company came up with a compensation scheme that was proposed about right years ago. However, the scheme that calls for the company to issue warrants to the minorities, with the option of selling them to the major shareholders, has yet to get off the ground.

A group of minority shareholders that collectively hold more than 10% equity interest in AHB intend to take action for compensation that the guarantors to obliged to make. They plan to call an EGM to seek resolution on this issue of compensation. They propose that the major shareholders fulfill the profit guarantee that has been promised earlier. They want to ask the board as to why they did not execute compensation scheme which was approved by the SC.

To recap, upon the listing of AHB, its major shareholders – Yong Yoke Keong, Yong Chew Keat and Iskandar Holdings Sdn Bhd – provided a profit a profit guarantee that the company would record a pre tax profit of rm12.4 million for FY1997 ended June 30 and rm7.98 million for FY1998 and FY1999.

Yoke Keong, the company’s CEO and MD, is the single largest shareholder with a 21.09% stake. Iskandar Holdings holds 6.85% while Chew Keat holds 6.09% stake.

In its latest annual report, the board states that the directors are continuing to deliberate on the next course of action in relation to the proposed settlement. The guarantors are exploring various options to arrive at a solution to the proposed settlement and will keep the SC informed.

Two of the guarantors – Yoke and Chew Keat – are board members while the chairman of the board is Mirzan Mahathir.

Having more than a 10% stake collectively the group of minority shareholders could call for a shareholders’ meeting to question the board on the shortfall of the profit guarantee or do the guarantors have the financial resources to buy back the warrants issued to the minorities?

AHB has been profitable for the past three financial years, however, its annual net profit was not even rm1 million. For FY2010 ended June 30, it posted net profit of rm903000. Revenue was rm27.2 million.

Based on its market cap currently, it is barely rm8.42 million based on rm0.175.

Some quarters say companies that are trading at such low market value often become an ideal target for parties looking for a shell to undertake a backdoor listing.

Is bringing in a financially strong white knight to implement the compensation scheme the next course of action that the minorities shareholders have in mind. But even if they do bring in a white knight, the chances of a change are remote, considering that the major shareholders hole more than 33% equity interest in AHB.

Another question that arises from this long standing issue is to whether the authorities will step in to compel the major shareholders to fulfill their promise of a profit guarantee.