Hong Seng offloads digital biz stake to Revenue Group less than six months after acquiring it

KUALA LUMPUR (May 12): In less than six months after acquiring a controlling 51% stake in Innov8tif Holdings Sdn Bhd in January to venture into the digital industry, Hong Seng Consolidated Bhd is offloading the stake to Revenue Group Bhd — citing its lack of experience in the digital business as the reason.

The RM36 million disposal, announced via a bourse filing on Friday (May 12), came prior to Hong Seng's payment of the balance consideration of RM24.41 million for the stake. It has paid only RM3.36 million of the RM30.86 million price tag so far, of which RM3.35 million would be retained as security performance of Innov8tif Holdings's key management personnel.

Hong Seng expects to pocket a gain of RM5.15 million from the disposal of the stake to Revenue Group for RM36 million. saying this is a positive for the group as it came without exposure to any business, financial and competition risks.   The glove maker said it is disposing of the stake as the group has no experience in the digital industry. It also perceived that the Innov8tif group would require a long gestation period before it could recoup its investment.

“The prospects of Innov8tif group and the digital industry remain positive. However, Hong Seng as new entrant has no prior experience in the industry, hence, will be dependent on its partner, Innov8tif Consortium Sdn Bhd (49% shareholder of Innov8tif Holdings), who are experienced with its background in the digital solutions industry to grow the businesses of Innov8tif group.

"For long-term prospects, Innov8tif group will require additional funding and time to widen its targeted market as well as to enhance its offerings and services in order to strengthen its presence in the Asean markets. Therefore, it would require a longer gestation period before the group (Hong Seng) is able to recoup the investment made to generate higher profits,” Hong Seng's filing read.

Innov8tif Holdings is an investment holding company newly incorporated in Malaysia on Jan 18.

Hong Seng, meanwhile, plans to use proceeds from the sale for working capital, and to fund any future business expansions within 18 months from the completion of the disposal in the third quarter of 2023.

Notably, Hong Seng just last month cancelled its plan to buy CSH Alliance Bhd's electric vehicle (EV) distribution business for RM20 million, just two months after the parties inked the share sale agreement for the transaction. At the time, Hong Seng said the deal was mutually terminated after it realised that the 55-acre land held by the EV business, Alliance EV Sdn Bhd (AEV), was not suitable for it to set up an EV battery manufacturing plant.

In a separate filing on Friday by Revenue Group, the e-payment solutions provider said the readily available digital ID assurance and digital onboarding businesses of Innov8tif group will complement and enhance Revenue’s existing businesses. It also hopes to ride on Innov8tif group’s clientele base to cross sell its products and services.

According to Revenue’s executive director Teh Chee Hoe, Innov8tif group has a strong customer base that includes major banks, fintechs, telcos, government agencies and insurance companies in Southeast Asia, he said in a statement.

It plans to fund the acquisition via a combination of its existing cash balance, internally-generated funds and/or borrowings.

On Friday, share price of Hong Seng rose half a sen or 4.55% to 11.5 sen, valuing the group at RM562.99 million. The counter has tumbled 54% in the past six months.

Meanwhile, Revenue’s shares closed two sen or 6.56% higher at 32.5 sen, bringing it a market capitalisation of RM163.97 million. Its stock price has more than halved in the past six months.

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