Kobay may privatise subsidiary Lipo

PETALING JAYA: Kobay Technology Bhd, the parent company of Lipo Corp Bhd, is considering an exercise to privatise the latter, according to reliable sources. The industry sources pointed to the fact that Kobay already owned 53.16% of Lipo, was cash-rich and Lipo was trading at a significant discount to its net tangible asset (NTA) value of RM1.60. It is understood that the advisory services of an investment bank has already been sought for the proposed deal although it is not clear which bank is involved. Both Kobay and Lipo are Penang-based companies involved in the manufacture of precision engineering equipment, although as of late last year, Lipo had ventured into property development. The Kobay-Lipo group is 26% owned by the Koay brothers Datuk Koay Hean Eng, Koay Cheng Lye and Koay Ah Bah. Hean Eng and Cheng Lye are common directors of Kobay and Lipo. Kobay's management was unavailable for comment. “Kobay is taking the cue from the flurry of privatisations that has taken place on Bursa Malaysia, stemming largely from the undervalued nature of the assets,” said a source. Kobay has more than RM60mil in cash and cash equivalents, which means that funding the privatisation should not be a problem. It will cost Kobay some RM27mil to buy back all the shares in Lipo it does not own at current prices or slightly over that if it is going to pay a premium to market. Lipo itself has a clean balance sheet, with RM28mil in cash and cash equivalents and with very little borrowings. Its venture into property development in Penang started last year when it bought nine lots of freehold land measuring a total of 47,679 sq ft in Tanjung Bungah for RM6.88mil or about RM144.30 per sq ft. It then said the plan was to develop that into residential and commercial properties. Lipo had also told shareholders then that the expansion into property development was a diversification strategy to help it move away from depending solely on the existing precision component manufacturing business, which was cyclical. The management of Lipo and Kobay had then declined to elaborate on the property development venture. Lipo's earnings fell to RM1.6mil in its latest quarter ended Sept 30, 2011, from RM2.7mil earlier due mostly to unfavourable performance of its China segment as result of the change of sales mix of overseas precision components and the loss incurred by the setup of a subsidiary in China. Since Kobay increased its shareholding in Lipo last December, Lipo's share price has risen by some 80% to RM1.14 per share last Friday. - The Star