WE Holdings

WE Holdings: lifts halt at 8.30am this morning. In line with its previously announced plans to expand into the resource-related business in Myanmar, WE Holdings has entered into a non-binding term sheet for the proposed acquisition of shares in Dragon Cement – which is engaged in cement manufacturing and majority-owned by His Excellency Nay Win Tun, a prominent Myanmar businessman and the Chairman of the Ruby Dragon Group of companies. WE Holdings will purchase 20% of Dragon Cement for US$20m. It also has the option to purchase an additional 20% stake thereafter, within a 3 mth window. Following the proposed acq, mgt targets to double the plant’s pdtn capacity from 400 to 800 tons/day. This compares with the estimated 2m tons of cement consumed daily in Myanmar, indicating huge unmet demand. Mgt believes the industrialisation and urbanisation in Myanmar and neighbouring emerging economies will underpin demand for cement, driven by continued growth of the infrastructure and construction sectors. The Proposed Acquisition will be funded through fund raising exercises and/or the Company’s own internal resources. Separately WE Holdings is exploring the sale of its electronics distribution business to Serial System. The indicative consideration is approx US$2.06m (based on 3.3% of the FYMar13 revenue of the electronic business). Serial System also has the option to purchase WE Holdings’ inventories on a cost basis, currently estimated at approx US$4.8m. The disposal will allow WE Holdings to focus on its potential new businesses. Given the total strategic revamp of the company, it is challenging now to value the stock based on the traditional valuation metrics. Investors will likely focus on the proposed 1-for-1 rights-cum-warrants issue, with rights issue price at $0.015 and warrant exercise price at $0.03 per share. Note also the co conducted a share placement in Feb ’13, at issue price of $0.037 per placement share, with net proceeds to fund the Myanmar investments.