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Challenger chief, management defend offer price, dividend payout

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Pressed by Pangolin Investment Management for a higher offer price and dividend payout yet again at its annual general meeting on Monday, both Challenger Technologies' CEO and management maintained that their practices are fair.

Singapore

PRESSED by Pangolin Investment Management for a higher offer price and dividend payout yet again at its annual general meeting on Monday, both Challenger Technologies' CEO and management maintained that their practices are fair.

Pangolin had in March released a report bemoaning that Digileap Capital's offer price was too low and unfair for minority shareholders, and that Challenger should be valued by its cash flow to shareholders, in which case the fair value of the shares should be at least S$1.15, not the S$0.56 that Digileap Capital is offering.

Digileap Capital is 70 per cent owned by the Loo family, and 30 per cent by Dymon Asia Private Equity. Pangolin owns 2.94 per cent of Challenger.

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Pangolin had, even before the meeting, already started rallying minority shareholders to vote against two resolutions: one, the proposed final dividend of two cents per share for FY18 which it deemed too low, and two, the proposal to give the company authority to allot and issue shares or convertible securities, because it felt that the company, being cash-rich, does not appear to need to raise cash anytime soon.

In response, CEO Loo Leong Thye, himself part of the offeror consortium, stressed the need for the company to remain prudent amid a difficult retail environment.

Its business is bogged down by rising rents and manpower shortage. The company needs to keep aside money as capital expenditure as it opens more stores, he said. This year, it is opening three: a 1,700 sq ft store at Jewel Changi Airport and 1,000 sq ft store at West Coast Plaza in Q2, and a third store (5,000 sq ft) at Paya Lebar Quarters in Q3. The store setup costs - including renovation, inventory and rental deposits - will come up to about S$3.5 million for these three stores.

Besides store openings, capex also goes towards shop renovations, decommissioning existing shops when rentals go up too high, procuring IT systems and investing in other businesses.

Overall, keeping an amount of cash within the company is also for the sake of its long-term sustainability. For instance, paying suppliers early can earn the company discounts later on. Besides, one never knows when an acquisition opportunity may present itself. "We prefer to do it on a self-sustaining basis rather than depend on outside funds to fund all this expansion," he said.

Mr Loo also said it is better for shareholders that the company gets privatised because as it undergoes new initiatives, revenue and earnings will inevitably be affected.

Asked by a shareholder if it was possible for the company to retain S$20 million for capex and distribute the rest of the cash to shareholders, which was what Pangolin had suggested last month as it believed that this was what the company needed for working capital, chief financial officer Tan Wee Ko appeared visibly irked.

He replied: "I keep on hearing this S$20 million magical number; it looks like you all already know the business more than us in management know our business. But to tell you honestly actually, to participate in an IT show, basically the full purchase of the stocks that we need for that four-day IT show could be more than S$12 million, S$15 million, just for the four days. I think you all have your own views on how much cash we need; similarly we also have our own views of how much cash we need."

In response to Pangolin director James Hay's comment too that the company does not need to raise cash and so does not need to issue shares or convertibles, Mr Loo said it is more for the purpose of hiring talent, as sometimes these employees may like to be given shares.

All resolutions were still passed in the end. Several times during the meeting, management also requested to defer discussion of the offer until the extraordinary general meeting to be convened, especially as the presence of an independent financial adviser would make for more fruitful discussion.