Hot stock: OKH Global surges 38.9% after proposed acquisition of Chip Eng Seng Construction

SHARES of OKH Global surged on Thursday (Dec 5) after the group announced that it plans to acquire Chip Eng Seng Construction for about S$118.5 million.

The counter rose 38.9 per cent or S$0.007 to S$0.025 when the market opened. Some 7.8 million shares were transacted at that time.

The share price later eased to S$0.021, still up 16.7 per cent or S$0.003 before the midday trading break. By 2.41 pm, shares of OKH Global were trading 22.2 per cent or S$0.004 higher at S$0.022, with 38.1 million securities changing hands. It ended the day at S$0.026, up 44.4 per cent or S$0.008.

No married deals were recorded, based on ShareInvestor data.

After the market closed on Wednesday, the group announced that it had entered into an agreement to purchase the entire issued and paid-up share capital of Chip Eng Seng Construction.

Chip Eng Seng Construction is the construction arm of Gordon and Celine Tang’s Acrophyte, which was previously known as Chip Eng Seng Corporation before the couple took the group private in 2023.

The initial consideration of S$118.5 million is at the lower end of the valuation range assessed by an independent valuer. The valuation of Chip Eng Seng Construction is between S$115.3 million and S$128.4 million.

OKH Global plans to pay by issuing new shares at S$0.05252 apiece. This represents a premium of about 212.4 per cent over the volume-weighted average price of S$0.01681 per share for the preceding trading day.

After the deal, Chip Eng Seng Construction’s parent company Acrophyte will hold more than 50 per cent of OKH Global.

Lock Wai Han, executive director and chief executive officer of OKH Global, said the acquisition would allow the group to “gain access to Chip Eng Seng Construction’s suite of credentials and certifications”, as well as participate in “a wider range of tenders”.

As at end-June 2024, Chip Eng Seng Construction has an order book of more than S$2 billion.

Lock also noted that the transaction could help to “revitalise the business” and “provide a strong financial footing” for OKH Global to pursue future growth opportunities.

In 2013, OKH was acquired by Sinobest Technology in a reverse takeover exercise, and was renamed OKH Global. Its operations include building construction, large-scale alteration and addition works projects, as well as property development.

But two years on, OKH Global became “heavily leveraged” and was in “a major downturn of the industrial real estate market”. In 2016, the group began divesting assets to reduce gearing and strengthen its financial position.

Currently, OKH Global’s remaining investment properties have a lease term of less than 20 years. The properties are expected to continue depreciating and decline in valuation in the medium to long term, said the group.

For the full-year ended Jun 30, 2024, OKH Global’s net profit rose 43.8 per cent to S$3.6 million, from S$2.5 million in the previous corresponding period. As at end-June, the fair value of the group’s investment properties amounted to S$77.5 million, down from S$80 million in the year-ago period.

“Furthermore, it faces a challenging outlook due to a tough macroenvironment with a large supply of multiple-user factory spaces, which are expected to have an impact on rentals in the medium term,” it added.

Assuming that the proposed transaction was completed on Jun 30, 2024, the net tangible asset per share of OKH Global would have been S$0.0367, down from S$0.0525.

It would also register a loss per share of S$0.0035, as opposed to an earnings per share of S$0.0032 if the acquisition was completed on Jul 1, 2023.

OKH Global will seek shareholders’ approval for this deal at a special general meeting, which is expected to be held in the first quarter of 2025.