Query 1
The existing use of Plot 17-A (minus the 3,000 square feet which has been rented out) and Plot 17-B. If used by Pentamaster Corporation Berhad group as a factory, the effect of the disposal on the operations.
Plot 17-A is presently used for precision fabrication which supports some of the fabrication parts required by PENTA Technology, PENTA Equipment and other companies within the PENTA group. Plot 17-B is presently vacant and being used as a temporary warehouse storage.
The management of PENTA does not expect the Proposed Disposal to have any significant impact on PENTA’s operations. As mentioned in PENTA’s announcement dated 15 October 2010, the Perlis government has offered PENTA a factory building sitting on a 10.8 acre land with a built-up area of approximately 200,000 square feet at a monthly rental rate of RM1.20 per square foot (“Perlis Plant”). Pursuant to the Proposed Disposal, PENTA has plans to relocate a portion of its manufacturing activities to the Perlis Plant.
In the interim period before the Perlis Plant is ready for occupancy, PENTA will outsource its manufacturing activities to local vendors and convert some of the office space in its other existing plants into production space to cater for final assembly and testing of PENTA’s products. As mentioned in PENTA’s announcement dated 15 October 2010, with the outsourcing model, PENTA will be able to benefit from savings from various areas including:
- inventory holding costs and finance costs as PENTA will not need to carry inventory;
- wastage and rework costs as manufacturing activity will be reduced; and
- fixed overhead costs as there will be reduction in manufacturing space and human capital.
Query 2
The amount of lettable space of Plot 17-A and Plot 17-B respectively.
As the Properties involved is a factory, the lettable space is normally based on the gross floor area. The gross floor area of Plot 17-A and Plot 17-B are 47,315 square feet and 132,845 square feet respectively.
Query 3
The amount of lettable space available for letting and the occupancy of Plot 17-A and Plot 17-B respectively.
Presently, Plot 17-A is primarily self-occupied. The tenancy agreement of the Demised Premises, as mentioned in PENTA’s announcement dated 15 October 2010, has been terminated on 30 August 2010. Plot 17-B is presently vacant and is being used as a temporary warehouse storage. Hence, the present amount of lettable space available for letting in Plot 17-A and Plot 17-B are 3,000 square feet and 132,845 square feet respectively.
Query 4
The percentage of occupancy of Plot 17-A and Plot 17-B respectively.
Pursuant to Query 3, Plot 17-A is presently 93.66% self-occupied, while Plot 17-B is presently not occupied.
Query 5
The date of valuation of the Properties.
The Properties were valued on 2 September 2010.
Queries 6 and 7
The justification for the discount of RM3.6 million or 7.89% from the market value of the Properties as appraised by Knight Frank.
The justification for the discount of RM0.34 million or 4.07% from the estimated net book value of the Machineries as at 30 April 2011 of RM8.34 million.
Despite the discount of RM3.60 million or 7.89% from the market value of the Properties as appraised by Knight Frank, PENTA expects the following estimated cost savings pursuant to the proposed disposal of the Properties:
- finance cost and building amortisation of approximately RM3.30 million per annum; and
- building maintenance, insurance, and quit rent and assessment of RM0.44 million per annum.
The justification for the discount of RM0.34 million or 4.07% from the estimated NBV of the Machineries as at 30 April 2011 of RM8.34 million is set out as follows:
- the management of PENTA is of the opinion that outsourcing is more cost competitive and effective due to the cyclical nature of the semiconductor industry. With the outsourcing model, PENTA would not require in-house machineries to support the fabrication activities, and in view of this, it is more economical for PENTA to dispose the Machineries; and
- PENTA will continue to incur an annual equipment depreciation of approximately RM1.80 million and an annual maintenance cost of RM0.68 million if it continues to own the Machineries.
In addition to the above, it should be highlighted that the proceeds from the Proposed Disposal will primarily help to reduce PENTA’s CLO, which will be due in October 2011, as well as other bank borrowings. Pursuant to the Proposed Disposal and repayment of the CLO and other bank borrowings, PENTA’s monthly cash flow commitment for monthly repayment of bank borrowings will be reduced by approximately RM0.72 million. This reduction will allow PENTA to boost its working capital and reduce its need to rely on borrowings. Further, taking into consideration the above-mentioned cost savings and the rental payment for the Perlis Plant, there will be net savings expected pursuant to the Proposed Disposal.
Query 8
The financial year in which the earnings per share will be reduced by 5.47 sen.
As the Proposed Disposal is expected to be completed by April 2011, the earnings per share for the financial year ending 31 December 2011 is expected to be reduced by 5.47 sen.
This announcement is dated 20 October 2010.
