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INIX TECHNOLOGIES “PURCHASER”) (I) (II)
1.
HOLDINGS
BERHAD
(“INIX”
OR
“COMPANY”
OR
PROPOSED ACQUISITION OF 25% EQUITY INTEREST IN HYPERQB SDN BHD (“HSB”); AND VARIATION OF THE UTILISATION OF PROCEEDS RAISED FROM THE RIGHTS ISSUE WHICH WAS COMPLETED ON 24 NOVEMBER 2015
INTRODUCTION The Board of Directors of Inix (“Board”) wishes to announce that Inix had on 22 March 2016 (“SSA Date”) entered into a sale of shares agreement (“SSA”) with Lim Choon Chong (“LCC”) and Li Bin (“LB”) (LCC and LB are collectively referred to as “Vendors”) to acquire 25% equity interest in HSB comprising 25,000 ordinary shares of RM1.00 each (“HSB Shares”) (“Sale Shares”) for a purchase consideration of RM7.70 million (“Purchase Consideration”), to be fully satisfied in cash and in accordance with the terms and conditions of the SSA as disclosed in Section 2.2 below (“Proposed Acquisition”). Pursuant to the above, the Board also wishes to announce that there is a variation to the utilisation of part of the gross proceeds of approximately RM27.82 million (“Rights Issue Proceeds”) raised from the Company’s rights issue of 278,179,000 ordinary shares of RM0.10 each in Inix (“Inix Shares”) together with 208,634,250 free detachable warrants (“Warrants”) (“Rights Issue of Shares with Warrants”) which was completed on 24 November 2015 (“Variation to the Utilisation of Rights Issue Proceeds”). The details for the Variation to the Utilisation of Rights Issue Proceeds are set out in Section 3 of this announcement.
2.
DETAILS OF THE PROPOSED ACQUISITION Pursuant to the terms of the SSA, the Company shall acquire 25,000 HSB Shares from the Vendors, free from all charges, liens, pledges, trust and other encumbrances and with all rights, benefits and entitlements accruing or attaching thereto. The purchase consideration shall be RM7.70 million and shall be satisfied entirely in cash. The details of the Vendors’ shareholdings in HSB as well as the payment of the Purchase Consideration by Inix are as follows: Vendors
Nationality
No. of HSB Shares to be acquired
% equity interest in HSB to be acquired
Cash consideration for the Proposed Acquisition (RM)
LCC LB
Malaysian People’s Republic of China
11,500 13,500
11.5% 13.5%
3,542,000 4,158,000
25,000
25.0%
7,700,000
Total
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The remaining 75% equity interest in HSB will continue to be held by the Vendors in the proportion set out as follows: Directors shareholders HSB
and of
No. of HSB Shares held as at the LPD
%
No. of HSB Shares held after the Proposed Acquisition
49,000 49.0% 51,000 41.0% 100,000 100.0%
37,500 37,500 75,000
%
(RM)
LCC LB Total
37.5% 37.5% 75.0%
Upon completion of the Proposed Acquisition, HSB will become a 25%-owned associate company of Inix. 2.1
Information on HSB HSB was incorporated in Malaysia under the Companies Act, 1965 (“Act”) on 14 March 2011 as a private limited company under the present name. HSB is involved in the provisioning of mobile content and application solutions, including mobile application development, mobile content gateway and mobile payment solutions, as well as consultation services. Details of the business activities of HSB are set out in Appendix I of this announcement. As at 17 March 2016, being the latest practicable date (“LPD”) prior to this announcement, the authorised share capital of HSB is RM100,000 comprising 100,000 HSB Shares, all of which have been issued and fully paid up. As at the LPD, HSB does not have any subsidiary or associated company. LCC and LB are the directors and shareholders of HSB. Based on the latest audited financial statements of HSB for the financial year ended (“FYE”) 31 May 2015, HSB had shareholders’ fund of approximately RM1.33 million, revenue of approximately RM6.34 million and its profit after tax (“PAT”) was approximately RM4.95 million. Based on the latest unaudited financial statements of HSB for the seven (7)-month period ended 31 December 2015, HSB had shareholders’ fund of approximately RM3.48 million, revenue of approximately RM3.14 million and its PAT was approximately RM2.81 million.
2.2
Salient terms and conditions of the SSA The salient terms and conditions of the SSA include, among others, the following: 2.2.1 Sale and purchase of Sale Shares The Vendors jointly agree to sell and the Purchaser agrees to purchase the Sale Shares on a willing-buyer willing-seller basis upon the terms and conditions of the SSA.
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2.2.2 Purchase Consideration The Purchase Consideration for the Sale Shares shall be paid in the following manner: (a)
ten percent (10%) of the Purchase Consideration being the deposit (“Deposit”) of the Purchase Consideration shall be paid to the Vendors on the SSA Date; and
(b)
the remaining ninety percent (90%) of the Purchase Consideration (“Completion Purchase Consideration”) shall be paid to the Vendors fourteen (14) days from the date the SSA becomes unconditional under Section 2.2.3(c) of this announcement (“Completion Date”) unless the parties agree otherwise in writing.
2.2.3 Conditions Precedent (a)
Approvals (i)
The parties agree that the Proposed Acquisition is conditional upon the effective fulfilment of the conditions precedent (“Conditions Precedent”) set out below: (aa)
There are no material adverse findings on HSB based on the results of the financial and/or legal due diligence inquiry to be conducted on HSB by the representatives of the Purchaser.
(bb) The approval of the directors of the Purchaser for the Purchaser to carry out the Proposed Acquisition. (cc)
Such other consents or approvals as may be necessary from any governmental or regulatory body or competent authority, or third party having jurisdiction over the sale of the Sale Shares which are mutually agreed on by the parties, having been granted, waived or obtained.
(dd) The Purchaser is satisfied that the Company has commenced with the development of Mobile Games and Apps (as defined in Section 3 of this announcement). (ii)
The parties undertake to procure the fulfilment of the Conditions Precedent that are applicable to them within the six (6) months from the SSA Date or such other date the parties may mutually agree in writing (“Conditional Period”);
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(b)
Non fulfilment of the Conditions Precedent Subject to the terms as set out in the SSA, unless specifically waived by the Purchaser at its absolute discretion, if any of the Conditions Precedent are not fulfilled before the Conditional Period or such time as the parties agree in writing, the SSA shall cease and determine and the Vendors shall return the Deposit free of interest to the Purchaser. Thereafter, neither party shall have any claims against the other for costs, damages, compensations or otherwise, save for any antecedent breach of any representation, undertaking and any of the terms of the SSA.
(c)
When SSA becomes unconditional When all the Conditions Precedent are fulfilled, the SSA will become unconditional.
2.2.4 Completion (a)
Completion Date and venue Completion will take place on the Completion Date at the offices of the escrow agent or at such other time and place as the parties agree in writing.
(b)
Vendors’ obligations on completion On completion, the escrow agent shall deliver the stake documents to the Purchaser.
(c)
Purchaser’s obligations on completion Upon the Vendors completing their obligations under Section 2.2.4 (b) of this announcement, the Purchaser shall cause the Completion Purchase Consideration to be paid to the Vendors.
2.2.5 Warranties and undertakings (a)
The Vendors jointly and severally warrant and undertake: (i)
that they are the legal and beneficial owners of the Sale Shares and each has the authority to enter into the SSA for the sale of the Sale Shares to the Purchaser in accordance with the terms of the SSA;
(ii)
they have not granted any first right of refusal to any party in respect of the Sale Shares and the Sale Shares are freely transferable;
(iii)
to the best of their knowledge and information all the warranties are accurate as at the SSA Date;
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(iv)
and acknowledge that: (aa)
each warranty is a separate and independent warranty;
(bb) no warranty is limited by reference to any other warranty or by the terms of the SSA; and (cc)
(b)
(c)
subject to Section 2.2.5 (c) of this announcement, the Purchaser is purchasing the Sale Shares in full reliance on the warranties.
The Vendors will immediately disclose to the Purchaser any matter or thing that may arise or become known to it after the SSA Date which: (i)
is inconsistent with any other warranty;
(ii)
might render any warranty misleading; or
(iii)
is material knowledge for a purchaser for value of the Sale Shares.
The Purchaser acknowledges that it has not relied on any representations and/or warranties, which has not been stated expressly in the SSA. The Purchaser further acknowledges that to the extent that the Vendors have made any representations and/or warranties which are not expressly stated in the SSA, the Purchaser has been provided with an opportunity to independently verify the accuracy of those representations and/or warranties.
2.2.6 Undertakings after completion (a)
The Vendors agree and undertake to the Purchaser that it will ensure that HSB will implement the development of Mobile Games and Apps (as defined in Section 3 of this announcement) on or before 31 December 2016.
(b)
Subject to (1) the prior approval of the board of directors of HSB being obtained; and (2) such terms and conditions as mutually agreed by the Vendors and the Purchaser: (i)
the Purchaser may participate in the management and operation of HSB’s business together with the Vendors; and
(ii)
the nominee of the Purchaser may be appointed as a director of HSB in accordance with the Articles of Association of the Company.
2.2.7 Termination of agreement (a)
If a party (“Defaulting Party”) (i)
fails to proceed to completion of the Proposed Acquisition despite the fulfilment of all the Conditions Precedent;
(ii)
fails to carry out any obligation on its part under the SSA required for completion of the Proposed Acquisition;
(iii)
is in breach of any term of the SSA;
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(iv)
in the case of the Vendors, any of the warranties contained in the SSA are false, incorrect or incomplete such as to render the warranties misleading;
and the Defaulting Party fails to remedy such breach within thirty (30) days after the other party (“Non-Defaulting Party”) has given that Defaulting Party written notice of such breach, the Non-Defaulting Party may give written notice to the Defaulting Party: (v)
terminating the SSA and claiming damages;
(vi)
enforcing specific performance of the SSA against the Defaulting Party;
(vii) defer completion of the Proposed Acquisition to a date not more than thirty (30) days after Completion Date or such other date as may be agreed by the parties in writing; or (viii) proceed to completion of the Proposed Acquisition so far as practicable (without prejudice to their rights under the SSA). (b)
Nothing in this Section 2.2.7 of this announcement affects any other provision of the SSA which gives rise to a right to terminate the SSA.
(c)
In the event that the completion of the Proposed Acquisition does not take place due to any failure to satisfy any or all the Conditions Precedent or the occurrence of any event which is beyond the control of the parties, each party must return all documents, if any, delivered to it by the other party or on behalf of the other party, to the other party and the Vendors shall return the Deposit free of interest to the Purchaser. Thereafter, the SSA shall cease and terminate and no party shall have any claims against the other save for: (i)
antecedent breach of any representations, undertakings; and/or
(ii)
as provided for in the SSA.
For the avoidance of doubt, each party shall bear its own costs and expenses with respect to the SSA in the event the SSA is terminated due to any failure to satisfy any or all the conditions precedent or the occurrence of any event which is beyond the control of the parties. 2.3
Liabilities to be assumed Save for the liabilities in the financial statements of HSB, there are no other liabilities, including contingent liabilities and/or guarantees to be assumed by Inix when undertaking the Proposed Acquisition.
2.4
Source of funding The Purchase Consideration will be satisfied entirely via part of the Rights Issue Proceeds (i.e., being the portion of proceeds allocated for the expansion of Inix and its subsidiaries’ (“Inix Group”) existing information technology (“IT”) business).
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2.5
Basis in arriving at the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration the following: (i)
the audited PAT of approximately RM4.95 million based on HSB’s latest audited financial statements for the FYE 31 May 2015;
(ii)
the unaudited PAT of approximately RM2.81 million based on HSB’s latest unaudited financial statements for the seven (7)-month period ended 31 December 2015. The annualised PAT for the seven (7)-month period ended 31 December 2015 is approximately RM4.81 million; and
(iii)
the future prospects of HSB as set out in Section 6.3 of this announcement.
The Purchase Consideration represents a historical price-to-earnings ratio (“PER”) of 6.22 times (based on HSB’s PAT for the FYE 31 May 2015).
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For information purpose only, the table below sets out the PER of companies listed on Bursa Malaysia Securities Berhad (“Bursa Securities”) that the Board deems to be broadly comparable (“Comparable Companies”) to the business of HSB notwithstanding the Comparable Companies are not directly comparable to HSB in terms of composition of business, breadth and scale of operations and track record. Comparable Principal activities Companies (latest FYE / stock exchange listing) M N C Wireless Berhad (FYE 31 December 2015 / Bursa Securities)
Consultation, sales, marketing and implementation of mbusiness^ solutions for business to business and business to consumer enterprise applications and the management of content resources for business to business and business to consumer enterprise applications. Sales and marketing, and research and development (“R&D”) of wireless, mobile and multimedia solutions and content.
MTouche Technology Berhad (FYE 31 December 2015 / Bursa Securities)
Provision of mobile applications and related technology services. Development of software and programming activities and provide maintenance and support service. Provision of mobile messaging content services, mobile messaging technologies, billing platforms and interactive media solutions based on wireless and internet technologies. Manufacturing software, consulting and providing IT solutions, market research and analysis services and value added services in telecommunication networks (data access services, data processing services and electronic data interchange). Engage in the business of handling and managing of computer data, data processing, data storage, systems design and analysis, software package development, programming, data communication, mobile messaging services, microfilming and related services like contract programming, computer education, consultancy, hardware maintenance.
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Basic Loss/Earnings per share (“LPS” or “EPS”)
Closing price as at the LPD
PER
(RM) (0.0044)
(RM) 0.220
(times) N/A*
(0.0052)
0.105
N/A*
Comparable Principal activities Companies (latest FYE / stock exchange listing) M-Mode Berhad (FYE 31 December 2015 / Bursa Securities)
Provision of mobile contents and data application services. Production and distribution of magazines. Media advertisement agent, and production and distribution of magazines.
Nexgram Holdings Berhad (FYE 30 April 2015 / Bursa Securities)
Programming services, software development, internet consulting and provision of IT services, computer consultancy, R&D, and auxiliary to finance. Content aggregator, mobile application service provider, development and distribution of retail mobile application solutions. Provision of media advertising, publishing and printing services. Property development, property investment as well as providing machinery and equipment related to property development and general supplies.
Basic Loss/Earnings per share (“LPS” or “EPS”)
Closing price as at the LPD
PER
(RM) 0.0573
(RM) 0.410
(times) 7.16
0.0038
0.060
15.79
Simple average
11.48
Notes: *
Not applicable as the Comparable Companies were loss making.
^
Electronic commerce conducted on cellular phones or mobile business.
(Sources:
Bloomberg Finance L.P. and latest audited financial statements or unaudited financial results of the respective Comparable Companies available as at the LPD.)
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Based on the above, the PER of HSB of 6.22 is lower than the lower PER of the Comparable Companies of 7.16 times. 2.6
Highest percentage ratio The highest percentage ratio applicable to the Proposed Acquisition pursuant to Rule 10.02(g) of the ACE Market Listing Requirements of Bursa Securities (“Listing Requirements”) is approximately 22.08%, computed based on the aggregate value of consideration given in relation to the transaction, compare with the pro forma Net Assets (“NA”) of the Inix and its subsidiaries (“Inix Group” or “Group”) as at 31 July 2015*. Note: *
The pro forma NA of the Inix Group is based on the latest audited consolidated financial statements of Inix for the FYE 31 July 2015 after adjustments for subsequent events (i.e., the Rights Issue of Shares with Warrants and acquisition of thirty percent (30%) equity interest in Galactic Maritime (M) Sdn Bhd (“Acquisition of Galactic”) that were completed on 24 November 2015 and 11 December 2015, respectively.
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3.
VARIATION TO THE UTILISATION OF RIGHTS ISSUE PROCEEDS On 24 November 2015, the Company completed the Rights Issue of Shares with Warrants and raised a total gross proceeds of RM27,817,900. The company intends to utilise part of the Rights Issue Proceeds (i.e., being the portion of proceeds allocated for the expansion of the Inix Group’s existing IT business) to fully satisfy the Purchase Consideration of the Proposed Acquisition as detailed below: Breakdown of the Rights Issue Proceeds Description*
Proposed utilisation of Rights Issue Proceeds* (RM’000) 7,200
Rights Issue Proceeds received (RM’000) 7,200
Variation
Revised utilisation
(RM’000) -
(RM’000) 7,200
Purchase of a new vessel
5,500
5,500
-
5,500
Expansion of the Inix Group’s existing IT business
8,000
8,000
(7,700)
300
N/A
N/A
7,700
7,700
6,318
6,318
-
6,318
800
800
-
800
27,818
27,818
-
27,818
Purchase consideration for the Acquisition of Galactic
Purchase Consideration for the Proposed Acquisition Working capital for the Inix Group Expenses in relation to the corporate exercises undertaken by the Company Total Notes: N/A
Not applicable.
*
As disclosed in the Company’s circular to the shareholders dated 30 July 2015 (“Circular”).
On 21 August 2015, the shareholders of the Company had, among others, approved the Rights Issue of Shares with Warrants which includes the intended utilisation as set out in the Circular. Based on the Circular, part of the Rights Issue Proceeds were proposed to be utilised for expansion of the Inix Group’s existing IT business as summarised below: “The Company intends to utilise up to RM8.0 million to expand the Group’s existing IT business. The Company is taking measures to expand its existing IT businesses in a bid to improve the Group’s financial performance and financial position. The Group’s expansion in the IT business may be carried out in either one (1) or a combination of the following ways (“IT Business Expansion Options”): (a)
acquisition of / investing in companies that are involved in software development for mobile devices;
(b)
acquisition of / investing in companies that are involved in Mobile Gaming Apps^; and/or
(c)
setting up of its own division and recruit talent that specialises in Mobile Gaming^, Mobile IT^ or Mobile Apps^ development.
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By leveraging on the Group’s experience and expertise in the development of Mobile Apps as well as R&D efforts in system integrated solution with Mobile Apps, the Group intends to expand its Group’s range of Apps to include Mobile Gaming. The said business expansion into development and commercialisation of the Mobile Gaming Apps will enable the Group to widen its revenue stream from its existing IT business to improve its financial position.” ^
Glossary of terms: “App(s)”
:
Computer programs that are designed to perform coordinated functions, tasks or activities
“Mobile Apps”
:
Apps that are designed specifically for use on small, mobile and wireless computing devices such as feature phones, smartphones and tablets
“Mobile Games”
:
Video games that are played on small, mobile and wireless computing devices such as feature phones, smartphones and tablets
“Mobile Gaming”
:
The act of playing video games on small, mobile and wireless computing devices such as feature phones, smartphones and tablets
“Mobile IT”
:
Mobile IT (mobile information technology) covers a wide spectrum of IT in relation to mobile devices (i.e. small, mobile and wireless computing devices such as feature phones, smartphones and tablets). Mobile IT pertains to the delivery of IT services to users using mobile devices. The types of IT services include, but are not limited to, mobile apps that allow users to disseminate and process information using mobile devices, provide internet connectivity as well as integrate mobile games
The Board wishes to clarify that its intention to expand the Inix Group’s range of Apps (including Mobile Games) has not changed. The Board still believes that the expansion into the development and commercialisation of Mobile Games and Apps will enable the Inix Group to widen its revenue stream from its existing IT business to improve its financial position. Notwithstanding the above, in identifying HSB as a viable acquisition target, the Board had also considered, among others, the viability of the business of HSB (as reflected in HSB’s PAT) and the prospects of HSB (as set out in Section 6.3 of this announcement), including having the ability to expand into the Mobile Games and Apps. While the Board recognises the manner of expansion in Mobile Games Apps may not be entirely similar as set out in the Circular, the Board is of the view this does not tantamount to a material variation in the utilisation of part of the Rights Issue Proceeds. Furthermore, the Board noted that based on the HSB’s R&D development plans (as set out in Section 6.3 of this announcement), HSB will implement the development of Mobile Games and Apps by 31 December 2016. In addition, the balance of the RM0.30 million will be retained by Inix for the expansion of Inix Group’s IT business in the future which may be carried out in either one (1) or a combination of the IT Business Expansion Options.
4.
RATIONALE FOR THE PROPOSED ACQUISITION Presently, the Inix Group is principally involved in software development, system integration, IT management consultancy and other related professional services as well as the selling of ebooks in Apple i-Tunes AppStore. The Proposed Acquisition is in line with the Group’s plan to expand its existing IT businesses and its range of Mobile Apps offerings by working with HSB in a bid to improve its financial performance and financial position.
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Considering the favourable future prospects of HSB (as set out in Section 6.3 of this announcement), the Board is of the view that the Proposed Acquisition represents a strategic investment as this would enable the Inix Group to be entitled to an alternative source of income via share of profits of HSB and therefore improve its financial performance and financial position in the future. Upon completion of the Proposed Acquisition, HSB will continue to be led by HSB’s key management personnel, namely LCC and LB, who played pivotal roles in setting the strategic direction for HSB.
5.
ADDITIONAL FINANCIAL COMMITMENT There is no additional financial commitment required by Inix arising from the Proposed Acquisition.
6.
INDUSTRY OVERVIEW AND OUTLOOK 6.1
Overview and industry outlook of the ICT industry in Malaysia During the first half of 2015, growth in the information and communication subsector remained robust at 9.5% (January – June 2014: 9.8%) led by strong demand for mobile internet, especially data and computer services. Growth was also supported by higher demand for Goods and Services Tax (GST) software and sustained demand for communication services. As at end-June 2015, cellular phone subscriptions grew marginally by 0.7% to 44.2 million to reach a penetration rate of 144.8% (end-June 2014: 3%; 43.9 million; 145.8%), with the prepaid segment dominating 81% of total subscriptions. The marginal growth was due to a marked shift in consumer preference to Over-the-Top (OTT) communication channels and social media. As a result, there was a sharp decline in voice and Short Message Service (“SMS”) usage. The take-up rate of mobile broadband services has further accelerated partly driven by the “Smart Device with Internet Package” product under the Universal Service Provision (“USP”) programme. The broadband segment stood at 27.9 million subscriptions as at end-June 2015 with mobile broadband accounting for the largest share at about 85% of total broadband subscriptions. In addition, the Ministry of Communications and Multimedia had announced in early 2015 that basic broadband package prices would be reduced in line with the aspiration of transforming Malaysia into a digital nation. As a result, telecommunication companies have lowered their prices up to 50% and launched new affordable broadband packages.
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Growth of the broadband segment is expected to remain buoyant supported by the Government’s various measures to strengthen and upgrade the quality of broadband services across the country. These include the National Broadband Initiative (NBI) that addresses the provision of infrastructure and facilities through the implementation of High-Speed Broadband (“HSBB”) and Broadband to General Population (“BBGP”). The Government through the public- private partnership (PPP) initiative with Telekom Malaysia (TM) has implemented HSBB projects in the inner Klang Valley, Iskandar Malaysia and selected industrial areas. As at end-June 2015, the HSBB project has linked 1.7 million ports recording a total of 823,000 subscriptions covering 685,000 homes and 138,000 businesses (end-June 2014: 747,000; 626,000; 121,000). Meanwhile, under the BBGP, broadband is implemented across the country through various technologies such as Asymmetric Digital Subscriber Line (ADSL), 3G/ High-Speed Downlink Packet Access (HSDPA) and Worldwide Interoperability for Microwave Access (WiMAX). As part of efforts to enhance ICT experience among the rakyat living in remote areas, USP projects are carried out through the Kampung Tanpa Wayar 1Malaysia (KTW1M) initiative, also known as Wi-Fi Komuniti (“WK”), which provides free wireless access to selected villages nationwide. In addition, Pusat Internet 1Malaysia (“PI1M”) was also established to function as an ICT training and knowledge hub. As at 30 June 2015, 5,860 WK and 562 PI1M (end-June 2014: 4,737; 431) have been established in rural areas throughout the country. In 2015, growth in the subsector is expected to remain strong at 9.7% (2014: 9.7%). (Source:
Economic Report 2015/2016, Ministry of Finance Malaysia)
In the information and communication sub-sector, growth remained robust (9.2%; 3Q 2015: 9.5%), driven by the continued strength in demand for data communication services. (Source: Economic and Finance Developments in the Malaysian Economy in the Fourth Quarter of 2015, Bank Negara Malaysia)
To improve the telecommunication infrastructure, Malaysian Communications and Multimedia Commission (MCMC) will provide RM1.2 billion, among others, for rural broadband projects which will see a four-fold increase in internet speed from 5 megabyte per second to 20 megabyte per second. (Source: Excerpt from the Prime Minister of Malaysia, YAB. Dato’ Sri Mohd. Najib Tun Razak bin Tun Haji Abdul Razak’s speech on the Budget 2016 at Dewan Rakyat 2016 on 23 October 2015, Office of The Prime Minister of Malaysia)
6.2
Overview and outlook of the mobile content and Apps industry Mobile telecommunications enable telephone calls, SMS or text messaging, Multimedia Messaging Service (“MMS”), as well as Mobile Apps for functions such as entertainment, news and gaming, to be performed and received while travelling around a wide geographic area. In addition to these services, mobile telecommunications may also allow for internet accessibility which enables the use of services such as email and internet portals. All of the abovementioned services are made and received through cellular networks, which are provided by mobile network operators (“MNOs”). There are four (4) main MNOs in Malaysia, namely Celcom Axiata Berhad, Maxis Berhad, Digi.Com Berhad and U Mobile Sdn Bhd. These MNOs provide mobile subscriptions to their users, and which may include mobile internet subscriptions. 14
Malaysia is the second most developed mobile telecommunication market in Southeast Asia after Singapore, with a total mobile phone penetration rate of 146.2% in 2015, based on total mobile subscriptions in the country. Mobile subscription in Malaysia grew from 33.9 million subscriptions in 2010 to an estimated 44.9 million subscriptions in 2014, at a compounded annual growth rate (“CAGR”) of 7.3% during the period. The number of mobile subscriptions in Malaysia stood at 44.2 million as at the first half of 2015. Many of these mobile subscriptions were still for feature phones. In 2013, the number of third generation (“3G”) network subscriptions was 18.0 million, indicating that there were still approximately 25.0 million mobile subscriptions which did not have 3G network subscriptions. The mobile content and App industry is in an early growth stage, and thus has significant potential for growth to cater for the growing mobile telecommunications industry. The industry size for the mobile content and App industry, based on revenues of identified industry players, increased from approximately RM0.7 billion in 2008 to approximately RM1.4 billion in 2014, at a CAGR of 12.8%. The mobile content and App industry is estimated to be RM1.5 billion in 2015. Moving forward, Smith Zander International Sdn Bhd (“Smith Zander”), an independent market researcher, forecasts the mobile content and App industry to grow from RM1.5 billion in 2016 to reach RM1.6 billion in 2017. HSB, as one of the industry players in the mobile content and App industry in Malaysia, shows potential to gain from the growing demand for mobile solutions. HSB’s intention to expand into the development of a cross platform Mobile App framework will accelerate its Mobile App development processes, thus enabling HSB to grow their revenues through the undertaking of more projects while still ensuring high customer satisfaction levels. This will also ultimately facilitate HSB’s development of new Mobile Apps, including Mobile Games, lifestyle and entertainment applications, as well as mobile business solutions. Competitive landscape HSB is involved in the provisioning of mobile content and application solutions, including Mobile App development, mobile content gateway and mobile payment solutions, as well as consultation services. The mobile content and App industry comprises industry players involved in the provisioning of mobile content and application solutions. Industry players which provide mobile content and application solutions by leveraging on the messaging platforms of the four (4) MNOs (i.e., namely Celcom Axiata Berhad, Maxis Berhad, Digi.Com Berhad and U Mobile Sdn Bhd), and these industry players are required to attain the Application Service Provider (“ASP”) license from the Malaysian Communications and Multimedia Commission (“MCMC”) in order to leverage on these messaging platforms. Based on the list of ASP license holders registered under the MCMC, there were a total of 541 ASP license holders in Malaysia in 2013, 502 ASP license holders in 2014 and 441 ASP license holders in 2015. The fluctuating number of ASP license holders each year illustrates that there are many new applicants each year, and many companies who subsequently do not renew their licenses.
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Out of these ASP license holders, approximately 55 were involved in the provisioning of mobile content and application solutions through the messaging platforms of the MNOs in 2015. A summary of the number of ASP license holders and number of industry players between 2013 and 2015 are as illustrated below:
Number of ASP license holders Number of mobile and application industry players which are ASP license holders
2013 541
2014 502
2015 441
86
70
55
(Source: Independent market research report, prepared by Smith Zander, March 2016.
6.3
Prospects of HSB HSB intends to expand its mobile content and Apps business through the following avenues: (a)
Development of a cross platform Mobile Apps framework which will shorten Mobile App development processes HSB intends to develop a cross platform Mobile Apps framework, which will enable rapid development of Apps that can be deployed across mobile devices and operating systems (i.e, iPhone operating system (“iOS”) or Google’s Android (“Android”)), while still maintaining optimal user experience. As such, this eliminates the need to spend additional resources developing the same Mobile App for different mobile operating systems, mobile devices or screen sizes. The Mobile App framework will be developed in-house, through internal research and development activities. In order to keep pace with the latest Mobile Apps trends, it is increasingly crucial for Mobile Apps to be developed in the shortest time frame possible. With this framework in place, HSB will be able to accelerate its Mobile Apps development processes, and will thus be able to meet this growing need. Further, this will also allow HSB to accept more projects while still ensuring high customer satisfaction levels. The development of the cross platform Mobile Apps framework will be in phases as follows: (i)
Phase 1: Design and development of the cross platform Mobile Apps framework As at the LPD, HSB has completed the design and development of the overall framework and user interface. The Mobile Apps framework developed by HSB allows for Mobile Apps to include standard features such as user authentication service, dashboard, account profile, publication of various reports and a payment gateway. The framework will be leveraged in every Mobile App project undertaken by HSB.
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(ii)
Phase 2: Mobile Apps platform This phase involves in the development of the Mobile Apps platform to a specific targeted client industry. The Mobile Apps framework outlines the functions and capabilities of the Mobile Apps to meet the client’s requirements of the Mobile Apps. The client’s requirements determine the parameters for developers in building the final version of the Mobile App using the Mobile App framework. Throughout Phase 2, test versions of the Mobile Apps will be released on a periodic basis with the aim of testing functionalities and measuring the performance of the Mobile Apps to ensure it operates within acceptable parameters. These test releases mark the evolution of the Mobile App from the framework till the final release of the Mobile App which will be delivered to the client. This phase was commenced in January 2016 and is targeted for completion in June 2016. At present, the Mobile Apps platform is developed based on a pilot project involving a Mobile App for the property development industry.
(iii)
Phase 3: Integration with existing markets This phase involves integrating the use of the Mobile Apps with existing stakeholders within the industry. With the integration of the Mobile Apps platforms between the related parties in the same sector, HSB will be able to offer existing stakeholders within the same industry greater convenience as it would eliminate redundant processes and enable shorter process turnaround time. This provides users a breadth of services that facilitates with the sale of properties between parties, as well as service listing between businesses and contractors. Security features built into the Mobile Apps platform serves to safeguard information of various parties and allows for a secure transaction environment that allows for these services to be carried out seamlessly. The Phase 3 is targeted to commence and implement in the second half of 2016.
(b)
Enhancement of mobile payment gateway solutions HSB intends to increase its network of mobile payment gateways in order to enhance its mobile payment gateway solutions for its customers. As part of increasing its network of mobile payment gateways, HSB will need to program the Mobile Apps based on specifications outlined by each mobile payment gateway. HSB intends to expand its mobile payment gateway solution business in two (2) phases as follows: (i)
Phase 1: Increase its network of mobile payment gateways to include MOLpay and Unionpay.
(ii)
Phase 2: Include other avenues of mobile payment including online banking with additional local banks, payment wallets and Apple Pay.
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(c)
Development of new Mobile Apps HSB is currently targeting to design new Mobile Apps, including Mobile Games, lifestyle and entertainment Apps as well as mobile business solutions by December 2016. As of end of January 2016, HSB has commenced the development of a property development App for the property development market in Malaysia and Taiwan. This property development App project is targeted for deployment at second (2nd) quarter of 2016. HSB also intends to embark on the development of Mobile Games Apps and business by end of 2016. With the development of its new Mobile Apps framework, HSB will be able to simultaneously develop the Mobile Apps for multiple mobile operating systems, particularly iOS and Android under a controlled number of technical resources. Thus, this is expected to accelerate its Mobile Apps development processes. Eventually to realise the new Mobile Apps in its business roadmap, HSB will be implementing a subscription based model in its completed Mobile Apps framework, beginning with the property developer App where it allows different property developers to subscribe for managed services, sales and bookings, residence management.
HSB’s future prospects is expected to be favourable taking into consideration HSB’s competitive strengths as set out below: (a)
Experienced management team with strong technical expertise HSB has an experienced and dedicated management team that is expected to continue to lead the business after the Proposed Acquisition. The senior management team is led by its directors, LCC and LB, who have played pivotal roles in setting the strategic direction for HSB. The key management has a technically strong background in the ICT industry in addition to practical experience within the industry. The experience and capabilities of HSB’s key management personnel are set out below: (i)
LCC LCC, age 36, is a director and major shareholder of HSB. He graduated from Multimedia University with a Bachelor of Information Technology majoring in Software Engineering in 2004. He began his career in 2004 as a Technical Developer with iSentric Sdn Bhd, a local mobile content and application solution provider, and was thereafter promoted to Technical Manager in 2006. In 2007, he joined atQuest Solution Sdn Bhd, an international IT consulting, technology and solution provider as a Solution Architect, where he was involved in the overall design and structure of various Internet portals implementation. During his course of employment at atQuest Solution Sdn Bhd, he took on several managerial roles, progressing from Team Manager to Solution Manager to Business Consultant to Project Manager to Business Development Manager, where he was responsible for leading the team involved in the solution tender exercise, research & development, planning and execution of various enterprise projects. Prior to joining HSB, LCC was
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promoted to Director in DayaQuest Technologies Sdn Bhd, a subsidiary of atQuest Solution Sdn Bhd in 2010. In 2012, LCC started the business of HSB. As a director of HSB, he is responsible for overseeing the overall strategic business planning, and leading the solution team in R&D, design, development and implementation of HSB’s mobile content and application solutions. (ii)
LB LB, age 37, is a director and major shareholder of HSB. He graduated from Guangdong Industry and Trade College with a Bachelor of Science in Software Engineering in 2000. In 2001, LB began his career as a System Engineer with Bo Chang Auto System Co. Ltd. in Shenzhen. In 2003, he joined iSentric Sdn Bhd (a local mobile content and application solution provider) as a Business Analyst. He was later promoted to Marketing Manager in 2004, and Corporate Account Manager in 2007. Throughout his nine (9) years in iSentric Sdn Bhd, LB was actively involved in the business development, sales and marketing of Mobile App and solutions. In 2015, he joined HSB and assumed his present position as director of HSB. As a director of HSB, he is responsible for overseeing the overall strategic business planning and development of HSB.
(b)
Innovative solutions and user-friendly products HSB is a mobile content and application solution service provider that is constantly seeking to innovate new solutions, in order to keep pace with the fast-evolving mobile content and App industry. HSB thus ensures that it is kept abreast with the latest industry trends through continuous market research, as well as builds and maintains a strong business relationship with its mobile operator partners and design partners.
Premise on the above, the Board expects the Proposed Acquisition to contribute positively to the Group via Inix’s share of future profits to be derived from HSB and the continued growth in the ICT industry as well as mobile content and Mobile Apps industry.
7.
RISK FACTORS The risk factors (which may not be exhaustive) pertaining to the Proposed Acquisition include but are not limited to the following: 7.1
Non-completion of the SSA In the event any of the Conditions Precedent is not fulfilled or waived (as the case may be), the Proposed Acquisition may be delayed or terminated, and the potential benefits arising therefrom may not materialise. In this respect, the Board seeks to limit such risk and will take all reasonable steps to comply with the relevant Conditions Precedent so as to be able to complete the Proposed Acquisition.
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7.2
Business risks The Board does not foresee any new material risks pursuant to the Proposed Acquisition in view that the Inix Group is already subject to the inherent risks associated with the IT industry that include, inter-alia, constraints in the supply of skilled and knowledge personnel, changes in economic and business conditions, changes in demand for and market acceptance of the Inix Group’s existing products and services as well as those of HSB’s, ability to introduce and successfully market new products (such as new Mobile Games and Apps) and services as well as enhancements in a timely manner, changes in consumers’ taste and rapid technological changes. Although Inix seeks to limit these risks and monitor its investment in HSB through, interalia, working with HSB to practise prudent management policies and constantly keeping abreast with the latest developments in the IT industry, no assurance can be given that any changes to these factors will not have a material adverse effect on HSB’s business.
7.3
Competition risks HSB may face competition from existing competitors and new entrants into the market in the future which offer similar products and services. In view of this, HSB has embarked on sharpening its competitive edge by continually developing new measures to counter competition which will include, amongst others, product differentiation, innovation in products and services. HSB will continue to focus on providing proven technology and also investments in products innovation to ensure its competitiveness. However, there can be no assurance that HSB would be able to sustain its competitiveness against current and future competitors.
7.4
Dependency on key personnel The Board believes that the sustainability of HSB’s IT business will depend substantially upon the abilities and continued efforts of HSB’s existing directors. Presently, HSB is managed by LCC and LB, who are also the shareholders and directors of HSB, with extensive knowledge and experience in developing business strategies, managing business operations and developing sales and marketing strategies. The sudden departure or loss of any of them, may result in HSB’s business being disrupted and HSB’s financial condition and results of operations being materially and adversely affected. However, Inix does not expect there would be any disruptions to the business operations of HSB upon completion of the Proposed Acquisition, as LCC and LB will continue to be shareholders and directors of HSB. As such, it would be in their interests to ensure the continuity in operations and profitability of HSB.
7.5
Political, regulatory and economic risks Adverse developments in political, economic and regulatory conditions in Malaysia where HSB is currently operating could materially affect the business, operations and financial prospects of HSB. Political, economic and regulatory uncertainties include but are not limited to the risks of war, riots, expropriation, nationalisation, renegotiations or nullification of existing contracts, inflation, changes in interest rates and methods of taxation.
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In mitigating such risk, the Company will work with HSB to monitor its investment in HSB and to advise the directors and/or management of HSB to adopt effective measure such as prudent management and efficient operating procedures to mitigate these factors when required. Nonetheless, no assurance can be given that any change to these factors would not have any material adverse impact on the financial performance of HSB in the future.
8.
EFFECTS OF THE PROPOSED ACQUISITION 8.1
Share capital and substantial shareholders’ shareholdings The Proposed Acquisition will not have any effect on the issued and paid-up share capital of Inix as well as the shareholdings of its substantial shareholders as it does not involve any issuance of new Inix Shares.
8.2
Earnings, EPS and NA Barring any unforeseen circumstances, the Proposed Acquisition is expected to contribute positively to the earnings, EPS and NA of the Inix Group for the financial year ending 31 July 2016 as the Board views the prospects of HSB favourably.
8.3
Gearing The Proposed Acquisition is not expected to have any material impact on the gearing of the Inix Group for the financial year ending 31 July 2016.
8.4
Convertible securities As at the LPD, other than the 208,634,250 outstanding Warrants, the Company does not have any other convertible securities. The Proposed Acquisition will not result in adjustments to the exercise price and number of outstanding Warrants.
9.
ESTIMATED TIME FRAME FOR THE COMPLETION OF THE PROPOSED ACQUISITION The Proposed Acquisition is expected to be completed by the second (2nd) quarter of 2016.
10.
APPROVALS REQUIRED The Proposed Acquisition is not subject to the approval of the shareholders of Inix or any other relevant authorities.
11.
INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM None of the Directors or major shareholders of Inix or persons connected to them has any interest, direct and indirect, in the Proposed Acquisition.
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12.
STATEMENTS BY THE BOARD OF DIRECTORS The Board, having considered all aspects of the Proposed Acquisition, is of the opinion that the Proposed Acquisition is in the best interest of Inix.
13.
DOCUMENT FOR INSPECTION A copy of the SSA will be made available for inspection at the registered office of the Company at Level 2, Tower 1, Avenue 5, Bangsar South City, 59200 Kuala Lumpur during the normal office hours from Monday to Friday (except public holidays) for a period of three (3) months from the date of this announcement.
This announcement is dated 22 March 2016.
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APPENDIX I INFORMATION ON HSB Principal business activities of HSB HSB is a mobile content and Apps solutions service provider. The IT services and solutions provided by HSB are categorised into the following four (4) segments: (a)
Mobile App development HSB provides its clients with end-to-end solutions for Mobile Apps development. Its services range from design development to deployment and hosting of the Mobile Apps. HSB provides consultation services to its clients in regards to the design of user interfaces and user experience in order to enhance overall user satisfaction in terms of usability and accessibility. The development and deployment of the Mobile Apps include undertaking testing and debugging of the Mobile Apps before the Mobile Apps are commercialised. HSB also works closely with reliable and established cloud computing solution providers to host the Mobile Apps. HSB also has the experience and expertise to assist its clients in complying with the requirements of Apple i-Tunes AppStore and Google PlayStore, thus enabling the commercialisation of these Apps in an efficient manner.
(b)
Mobile content gateway HSB also offers mobile content gateway solutions, which is a technology infrastructure that allows for connectivity between businesses and their subscribers. Mobile content gateways allow mobile content to be delivered to subscribers, by leveraging on MNOs’ messaging platforms through SMS and MMS. HSB collaborates with the MNOs to deliver its mobile contents and applications to the respective MNOs’ mobile users via the respective MNO’s gateway. These mobile business services include, but are not limited to, mobile integration application program interface (“API”), messaging platform and content delivery.
(c)
Consultancy services HSB offers pre-project consultancy services to its clients to determine or refine their mobile content and application solution strategy, providing its clients with a detailed design, solution architecture and roadmap to implement their mobile content and application solution strategies. In addition, HSB also undertakes the project management of the mobile solution projects in order to ensure the mobile solutions are implemented and commercialised in a timely and efficient manner.
(d)
Mobile payment gateway Mobile payment gateway solutions enable electronic financial transactions to be carried out in a secure environment between the merchant and major payment card brands (such as Visa and MasterCard), online banking, international payment gateway (UnionPay, Paypal, Apple Pay) or banks sanctioning the payment in a secure environment via a mobile device. The payment gateway acts as a mediator in such a transaction where it enables the merchant to receive payment that has been approved by the relevant major payment card brands or banks. HSB’s mobile payment gateway, QB.CONNECT, facilitates mobile payment transactions through local and international payment gateways, namely FPX, iPay88 and PayPal. This allows HSB’s clients to enjoy full control over their mobile payment page design and shopper data through direct API integration. QB.CONNECT also has an encryption solution put in place to allow clients to accept payments on their own payment pages, while payment data is still encrypted in the consumers’ browser.
