ABUNDANCE INTERNATIONAL: New chemical business to give new lease of life?

Interesting developments, mainly a change in its core business, at Abundance International Ltd (formerly known as Craft Print) may pave the way for its return to profitability after losses in at least the past five years (2011-2015).

Its 1H2016 revenue has soared and, though there was a loss, it was only US$247,000 (see table).

Abundance is a Singapore-incorporated company listed on the Catalist of the SGX-ST. It has scaled down and ceased its former core business of commercial printing by 31 Dec 2015.

Currently, under new controlling shareholders, it is principally engaged in the businesses of chemicals manufacturing, trading, storage of equipment, accessories, consumables or peripherals used in the chemical industry. 

Direct Interest 

Deemed Interest

Total Interest

Percentage

Directors

Shi Jiangang

238.4 m

-

238.4 m

37.09%

Sam Kok Yin

95.3 m         

10.2 m 

105.4 m

16.40%

Substantial Shareholders

Jiang Hao      

117.6 m     

-

117.6 m

18.30%

Chan & Ong Holdings

-

85.5 m 

85.5 m 

13.3%

Chan Charlie 

2.0 m        

94.7 m         

96.7 m

15.04%

Ong Kwee Cheng Dora

9.2 m

87.5 m         

96.7 m

15.04%

1) Mr Shi and Mr Sam invested in Craft Print in 2014 via a convertible bond with a conversion price of $0.05 per share. Eventually they took board control and sold off the printing business and got into chemical trading.

2)  Mdm Ong and Mr Chan no longer run the company and have reduced their exposure to Abundance through a reduced take-up rate of their entitlement in the rights issue.

3) Compliance placees subscribed at S$0.07 per share (which was a 40% premium to the price of $0.05 at that time in July 2016) and have possibly put in a further $0.016 via the recent rights issue.

Hence their total costs add up to $0.086 (versus current price of $0.057). This may reflect their positive view of, and commitment to, the chemical business.

4) The Directors and Substantial Shareholders collectively own 86.8% of the company’s issued shares. If the Compliance Placees' shares (8.8%) were included, the figure rises to 95.6%. Hence, the tradeable free float is estimated to be only 4.4% to 13.2%. 

5) The Company provided an optimistic outlook in the half-year results announcement on 8 August 2016 as follows:

“The Group has ceased internal production in respect of the printing business. Any outstanding and new sales orders that have been or may be received in respect of the printing business will be outsourced to other printers to produce on behalf of the Group. This would stem the losses consistently suffered by the printing business over the past several years and stop further erosion of shareholders’ value. With that done, our next aim would be to enhance shareholders’ value by leveraging on our new business segments.

"Our chemical trading business, conducted via Orient-Salt Chemicals Pte Ltd (“OSC Singapore”) and its subsidiaries (the “OSC Group”) achieved revenue of US$23,959,000 for the six months ended 30 June 2016. This is despite the OSC Group having limited working capital as it did not have access to any trade facilities from banks."

On 5 August 2016, the Company further announced that OSC Singapore has accepted an uncommitted trade finance related facility of up to S$14,000,000 made available by an international bank (the “Facility”). Mr Sam commented:

"As compared to HY2016, the revenue of the OSC Group for the remaining 6 months of FY2016 is expected to be higher due to:

- OSC Singapore’s wholly-owned subsidiary in the China commencing operations in August/September 2016; 

- The availability of the Facility; and 

- The completion of the Placement and Rights Issue, which will significantly improve the Company’s cash flow position and allow it to give financial support to the OSC Group. 

Completion of the Acquisition also allows Abundance to take in the entire financial performance of the OSC Group going forward."

Interesting details of Abundance Warrants

 
Given that it is a European Style Warrant, it should trade at a discount. The question is how much?

An acceptable discount would be in region of 10%, and hence a price of $0.039 based on underlying share price of $0.066.

Now the chemical business both the topline and bottomline of Abundance, in view of the additional working capital provided from the rights issue of S$8,180,000 and uncommitted trade finance related facility of up to S$14,000,000 from an international bank. 

If Abundance's share price were to rise:

1) Abundance shares at $0.086 (which is the combined subscription price of Compliance placees $0.086), the warrants could be worth $0.057 (assume a 10% discount to underlying share price),

2) Abundance shares at $0.10, the warrants could be worth $0.07 (assume a 10% discount to underlying share price),

This compares favourably with the current price of Abundance warrants of $0.028.

My view is that the warrants allow a cheaper entry into the chemical manufacturing play of Abundance.