SINGAPORE - Catalist-listed MeGroup disclosed that it had not conducted any cash-flow forecast in relation to its buying of an extra 25 per cent stake in subsidiary MJN Motors, which runs its Honda dealership in Cheras and Kuala Selangor.
This was in response to queries from the Singapore Exchange (SGX), which asked the car dealer and component manufacturer to explain why it had pegged the terms of the share acquisition to twice the future financial performance of MJN Motors.
MeGroup said the terms were made on the expectation that MJN Motors would turn around from a net loss position in fiscal 2018 to a net profit position in fiscal 2019. It also took into account future potential earnings expected from the unit, which offers car body paintwork and collision repair services after upgrading works.
In arriving at the two times multiple for fiscal 2019 and 2020 earnings, which also represents a four times multiple of the average earnings for fiscal 2019 and 2020, MeGroup had taken into account its current price-to-earnings ratio, which was around 17 times based on its RM4.2 million (S$1.4 million) net profit for the last 12 months, closing share price of S$0.205 as at April 1, a total of 118.5 million MeGroup shares outstanding, and an exchange rate of S$1 to RM3.0113 as at April 1.
Thus, it noted the current price-to-earnings ratio was "well above" the transaction's price-to-earnings ratio.
MeGroup also disclosed MJN Motor's financial performance which saw a net loss attributable to sale shares of RM27,445.25, based on the audited accounts for fiscal 2018. Prior to MJN Motor's 2017 acquisition of the Honda dealership from MJ Motors, MJN Motors did not have any operations or revenue.