Hong Lai Huat to exit agricultural business in proposed US$37.5 million disposal

HONG Lai Huat is looking to sell two of its loss-making subsidiaries in Cambodia for a total consideration of US$37.5 million.

This move would mark the group’s exit from its agricultural business, which “has never been profitable” since its inception in 2008, said the property developer on Monday (Feb 5).

One subsidiary, an investment holding and property investment holding, owns dormant land in the countryside spanning 509.54 hectares (ha) in total and will be sold at a consideration of US$1.5 million. 

Hong Lai Huat said it has no immediate plans to develop this land – and that it views other existing landbanks with better locations in the city area as potentially “more suitable for development” under its property division.

Another subsidiary, which is to be sold for a consideration of US$36 million, owns the rights to 12 parcels of agricultural land with an area of 8,999.95 ha. Hong Lai Huat intends to seek shareholder approval for the sale of this subsidiary in an extraordinary general meeting to be held in due course (*see amendment note).

The land is primarily used to cultivate fresh cassava. It also houses individual offices, warehouses, workstations and production facilities, including a cassava starch production factory.

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Based on the difference between the disposal consideration and the company’s book value of S$61.8 million as at end-June 2023, Hong Lai Huat expects to recognise a loss on disposal of S$13.6 million on the sale of the subsidiary owning rights to this land.

The subsidiary is estimated to have contributed to an attributable net loss of US$1.6 million, or S$2.1 million, out of the S$2.4 million net loss reported by the group for H1 FY2023. 

Its US$36 million sale consideration represents a discount of 17.05 per cent to the net tangible asset value of the sale shares amounting to about US$43.4 million.

Highlighting the agricultural segment’s revenue from FY2022 to H1 FY2023 as “relatively insignificant from an absolute quantum basis”, Hong Lai Huat said the overall financial performance of this segment “would likely become increasingly smaller, or marginal, as the property division starts to contribute a greater proportion to total group revenue from its sale of property units”.

Disposing of both Cambodian subsidiaries is expected to raise net proceeds of S$50.2 million in total, which the group intends to deploy for working capital or other purposes, such as to reduce its gearing ratios. 

Doing so will provide the group with greater options and flexibility in managing its capital, strengthening its balance sheet and cash position, and the repayment of bank loans – pending the launch of sales of Hong Lai Huat’s future development projects. 

Assuming both disposals were completed on Jan 1, 2022, this is estimated to result in a FY2022 loss per share of S$0.04 instead of S$0.02.

Had the transaction been completed on Dec 31, 2022, Hong Lai Huat’s net tangible assets to net asset value for the fiscal year would have been at S$0.23 per share instead of S$0.27, while its gearing ratio would have stood at a higher 0.09 times than the reported 0.08 times for FY2022.

Shares of Hong Lai Huat : CTO 0% closed flat at S$0.053 on Feb 1 before the group requested a trading halt the following morning. Upon resuming trading, the counter remained unchanged as at the midday trading break on Monday.

Amendment note: An earlier version of this article incorrectly stated that Hong Lai Huat would hold an EGM to seek shareholder approval for the disposal of both Cambodian subsidiaries. It will only be seeking approval for the subsidiary it intends to dispose of at a US$36 million consideration.