As more than 90 per cent of its shares have been or will be acquired, the company no longer meets the Singapore Exchange&rsquo s free-float requirement

 

THE offerors of Second Chance Properties &ndash chief executive Mohamed Salleh and his family &ndash will be making a compulsory acquisition of all the shares of the company. 

 

As at 6 pm on Thursday (Sep 12), the total number of shares owned, controlled or agreed to be acquired by Salleh and his family, as well as valid acceptances of the offer, amounted to 915 million shares.

 

This represents 98.62 per cent of the total number of shares of Second Chance Properties in issue.

 

In July, Salleh and his family launched a voluntary unconditional offer to take the mainboard-listed real estate company private at S$0.30 a share in cash.

 

As more than 90 per cent of its shares have been or will be acquired, the company no longer meets the Singapore Exchange&rsquo s free-float requirement, under which an issuer must ensure at least 10 per cent of its total number of issued shares are held by the public. 

 

This means that Second Chance Properties&rsquo owners can take the company private and it &ldquo will in due course&rdquo exercise its right of compulsory acquisition. 

 

Subject to the completion of the compulsory acquisition, the offeror intends to make an application to the Singapore Exchange to delist the company.

 

Shareholders who have not accepted the offer of S$0.30 a share have until 5.30 pm on Sep 27 to do so.

 

When the privatisation offer was first announced, Salleh and his family said the company&rsquo s shares had low trading liquidity, and that the company was incurring costs to maintain its listing status &ndash costs which could be avoided if it were to be delisted.

 

The offer price represented premiums of about 40.8 per cent, 37 per cent, 33.3 per cent and 28.2 per cent over the one-month, three-month, six-month and 12-month volume-weighted average prices, respectively, up to and including the last trading date prior to the offer announcement.

 

Salleh and his family said that they intend for the company to continue to develop and grow its existing businesses.

SINGAPORE - In a move which brings it within a whisker of full privatisation, the founder of Singapore-listed Second Chance Properties and his family have amassed 97.45 per cent or 904.10 million shares of the company as at Aug 23.

 

This comes just two weeks after their privatisation vehicle Final Chance Holdings accumulated 91.18 per cent of the company&rsquo s shares as at Aug 6, a threshold which saw the stock lose its free float status on the Singapore Exchange.

 

Second Chance founder and chief executive officer Mohamed Salleh Marican, his family and related parties already controlled some 86.2 per cent of the company before the privatisation offer was launched on July 10.

 

Final Chance Holdings is now working to acquire another 10.9 million of the 23.7 million holdout shares to pass the threshold for full privatisation.

 

Under the Singapore Exchange&rsquo s delisting rules, an offeror is required to acquire more than 75 per cent of outstanding minority shareholdings beyond what family and related parties own &ndash which in Second Chance&rsquo s case was 86.2 per cent prior to the offer.

 

Minority shareholders who are holdouts at this point &ndash now that the company has passed the 90 per cent free-float loss threshold &ndash risk ending up as shareholders of a privatised company.

 

The closing date for the offer has been extended to Sept 9, two weeks beyond the original closing date of Aug 26.

 

Final Chance reiterated on Aug 23 that its offer price of 30 cents per share is final.

 

Second Chance will subsequently be delisted from the SGX.

 

Citing low liquidity and undervaluation, Mr Salleh and his family launched their bid to take the company private via a voluntary unconditional offer.

 

As at July 10, the company has an issued and paid-up share capital of about $174.7 million, comprising 927.8 million shares.

 

The 30 cents per share offer price represents a premium of about 39.5 per cent over Second Chance&rsquo s traded price of 21.5 cents on July 9, the last full trading day before the offer announcement.

 

It also represents premiums of about 40.8 per cent, 37 per cent, 33.3 per cent and 28.2 per cent over the one-month, three-month, six-month and 12-month volume-weighted average prices respectively, up to and including the last trading date.

 

Independent financial adviser Zico Capital has advised the company&rsquo s independent directors to recommend that shareholders accept the offer, which it deems &ldquo fair and reasonable&rdquo .

 

The offeror has stated that the company would continue to develop and grow its existing businesses, primarily in financial investments and commercial property.

Mohamed Salleh and his family are looking to take the company private at S$0.30 per share

 

SHARES of Second Chance Properties rose as much as 39.5 per cent at Thursday&rsquo s (Jul 11) open after the counter resumed trading, as investors digested the founder&rsquo s bid to take the company private.

 

On Wednesday, Mohamed Salleh, the founder and chief executive of Second Chance : 528 +37.21%, and his family made a voluntary unconditional offer of S$0.30 per share in cash to take the group private.

 

Second Chance&rsquo s shares jumped 39.5 per cent or S$0.085 to the offer price of S$0.30 right when the market opened after a trading halt was lifted. By 9.36 am, the counter was trading 37.2 per cent or S$0.08 higher at S$0.295, with 346,600 shares changing hands.

 

The deal was made through Final Chance Holdings, a vehicle incorporated in connection with the offer.

 

The Salleh family&rsquo s offer represented a premium of about 39.5 per cent over Second Chance&rsquo s last traded price of S$0.215 on Jul 9, the last full trading day before the offer announcement. It is also at a slight 0.5 per cent discount to the group&rsquo s net asset value per share of S$0.3016 as at end-February.

 

Second Chance has four core businesses: property investment, apparel and gold jewellery retailing, and investment in financial instruments. It was listed on the Singapore Exchange&rsquo s mainboard in 2004.

 

The company called for two trading halts on Wednesday, once before the market opened and another after it released the announcement.

 

SECOND Chance Properties posted a 52.8 per cent fall in its net profit to S$4.3 million for its first half ended Feb 29, 2024, from S$9.2 million a year earlier.

 

This was mainly due to lower contributions from its properties and securities businesses, the company said on Wednesday (Mar 27).

 

Earnings per share stood at 0.47 Singapore cents for the half-year period, down from 0.99 cents in the corresponding period a year ago.

 

Revenue for H1 fell 10.4 per cent to S$13.3 million, from S$14.8 million a year earlier. The group experienced a decline in revenue across all its segments, which are apparels, gold, properties and securities.

 

Rental revenue from its properties segment fell 26 per cent to S$1.1 million, mainly due to loss of rental income from the sale of two investment properties.

 

Net profit from the segment also fell 58.4 per cent to S$2.3 million, as the company recorded lower gains on investment property disposals in H1 FY2024.

 

Meanwhile, its securities business had a 5.6 per cent fall in revenue to S$3.2 million, due to lower dividends received.

 

Net profit for the segment also fell 42.4 per cent to S$3 million as it registered an unrealised foreign exchange loss for H1 FY2024, compared with the unrealised foreign exchange gain in H1 FY2023.

 

Revenue from its apparel business fell 27.4 per cent to S$450,000, as a retail outlet in Singapore was shut down in June 2023 due to a mandatory mall-wide renovation that forced all tenants to relocate.

 

Net loss from the segment narrowed to S$10,000 from S$520,000, however, as the outlet had high fixed costs.

 

As for its gold business, revenue fell 8.3 per cent to S$8.5 million due to general market conditions, but net profit rose 33.8 per cent to S$1.9 million due to a rise in gold prices.

 

No dividend was declared for the half-year, unchanged from the year before.

 

In a bourse filing earlier in March, the company said it expected its H1 net profit to &ldquo decrease significantly&rdquo , likely due to lower gains on disposal of investment properties, as well as unrealised foreign exchange losses.

 

MAINBOARD-LISTED company Second Chance Properties : 528 0% expects net profit for its first half ended Feb 29, 2024 to &ldquo decrease significantly&rdquo on year.

 

This is compared to net profit of S$9.2 million in the same period a year earlier, the company said in a bourse filing on Tuesday (Mar 19).

 

The expected decrease is likely due to lower gains on disposal of investment properties in H1. The company disposed of two investment properties this year, while it had seven disposals in 2023.

 

Second Chance Properties also recorded unrealised foreign exchange gains in H1 2023, but expects it will post unrealised foreign exchange losses in H1 2024.

 

It said it is still in the process of finalising the results, and expects its unaudited financial statements to be released on or around Mar 27.

 

REAL estate company Second Chance Properties : 528 0% has announced that the group&rsquo s net profit for the financial year ended Aug 31, 2023, will &ldquo increase significantly&rdquo when compared to the net profit of S$14.2 million for the same period a year ago, based on the management&rsquo s preliminary review of the unaudited consolidated financial statements.

 

It said in a bourse filing on Friday (Oct 20) that the expected increase in net profit is due to the increased dividend income received in FY2023 on quoted securities as well as gain on disposal of investment properties.

 

There is a realised gain of S$5.4 million upon cash acquisition as well as disposal of a few equity instruments held by the group and classified as financial assets, at fair value through other comprehensive income.    

 

This gain, however, is taken directly to equity through retained earnings, it said in the filing.

 

The mainboard-listed company said it is still in the process of finalising the results for FY2023, and expects the unaudited financial statements for the group to be released on or around Oct 30.

In its quarterly portfolio update, Second Chance Properties 528 0.00% says that its the fair value of its securities for the quarter ended May 2023 has reached $283 million, vs $255 million for the preceding quarter ended Feb 2023.

 

While it incurred an unrealised fair value loss of $0.09 million in Singapore for the quarter ended May, it sees an unrealised fair value gain of $6.75 million for the same quarter.

 

During the quarter, it received some $2.26 million worth of dividends, versus $0.52 million for the preceding quarter.

 

The company, under founder and CEO Mohamed Salleh Marican, has shifted its focus from investing in retail properties to investing in quoted securities, has allocated the bulk of its investments in Hong Kong and China. At 65%, the proportion in Hong Kong and China outstrips 34% it allocates to Singapore.

 

According to Second Chance in its update on July 10, as at May 31, its top ten holdings are all China stocks.

 

Its single largest holding, at 4.42%, is China Mobile, followed by CITIC and China CITIC Bank at 4.3% and 4.16% respectively. The fourth largest holding is China Unicome, at 3.69%, followed by the Agricultural Bank of China, at 3.62%.

 

Second Chance Properties 528 2.13% founder and CEO Mohamed Salleh Marican is no stranger to pivoting its business according to prevailing market conditions. Over five decades as an entrepreneur, he has entered and exited various businesses to stay profitable or cut losses.

 

The most recent pivot took place over the last couple of years, as Mohamed Salleh channelled his attention and the company&rsquo s resources from investing in property and collecting rent to investing in shares and collecting dividends.

 

A few of his recent bets have paid off nicely, as he happily notes in an interview with The Edge Singapore. For example, Second Chance Properties made $5.2 million and $6.4 million from the privatisation of Chip Eng Seng Corp and Singapore Press Holdings, respectively. In 2021, when the Hong Kong-based Jardine group streamlined its structure, he made $3 million from the privatisation of Jardine Strategic Holdings by Jardine Matheson Holdings.

 

Mohamed Salleh now plans to focus on the securities investments business in a more structured way by expanding its current four-member investment committee and bringing in new independent directors with relevant experience.

 

Meanwhile, the 74-year-old is also grooming his only son Amal Marican, 36, to take over the business. Amal joined the company in 2008 and is currently the executive director of Second Chance&rsquo s apparel business in Malaysia. Mohamad Salleh describes Amal as driven, passionate, and detail-oriented when it comes to analysing investment fundamentals. Besides investing in shares, Amal also earns his trading chops in the cryptocurrency market.

 

That does not mean Mohamed Salleh is looking to let go of the helm anytime soon &mdash he wants to double the company&rsquo s securities portfolio from $255 million as of Feb 28 to $500 million within the &ldquo next few years&rdquo . If this portfolio can yield him the 7% he aspires to, that will give the company $35 million in recurring income a year, he adds.

 

&ldquo Recurring income is the best business &mdash it&rsquo s like collecting rent. And since we are buying solid companies, the recurring income should increase as the companies grow. As a person who never wants to retire, I feel like this is the best business I can be in,&rdquo says Mohamed Salleh.

 

Scaling up

 

With his decades in business, Mohamed Salleh is used to its ebb and flow. In 1974, his first venture was a men&rsquo s tailoring business M Salleh Enterprise at Peninsula Shopping Centre. That failed, and he sold it for $15,000, losing half his capital. Yet, five months later, he bought it back for $8,000 after the previous buyer failed. This time, it was a success and gave birth to the &ldquo Second Chance&rdquo brand.

 

The following year, Mohamed Salleh opened two more men&rsquo s tailoring outlets at the Far East Shopping Centre and Queensway Shopping Centre. However, he had to eventually close both outlets as he could not keep his employees in line. &ldquo Back then, I was young and inexperienced. If I faced those problems today, I would not have been overwhelmed and could handle it seamlessly,&rdquo he recalls.

 

In 1978, he started a men&rsquo s ready-to-wear (RTW) business, selling pants and shirts at half the price of those sold at department stores. Leveraging television advertising using Caucasian models, he had expanded to 25 shops across Singapore and Malaysia by 1998.

 

Unfortunately, due to fierce competition, he cut losses again and closed 21 shops between 1989 and 1992, severely demoralising his staff. &ldquo That was the worst three years of my career,&rdquo he recalls.

 

Always sniffing new opportunities, he started a women&rsquo s RTW brand First Lady. At the time, most Malay women would need to go through the tedious process of first buying four metres of cloth and sending them to their tailors to make their baju kurung. There were always uncertainties that their clothes would not be done on time, on top of the hassle of having to go back and forth for fittings.

 

Due to the convenience and easy access, even on the eve of Eid, First Lady was an instant success. The single outlet managed to gain $1 million in sales within a year &mdash something none of the other menswear outlets has achieved.

 

Gold and property next

 

With this, Mohamed Salleh opened a gold retailing shop Golden Chance, which he set up right next to the First Lady outlet. At first, the gold business struggled as customers assumed it was selling imitation goods. To fix this problem, Mohamed Salleh paid for six segments on television variety shows advocating the brand, which benefitted the business.

 

Buoyed by the apparel and jewellery business earnings, Mohamed Salleh listed Second Chance on the SGX in 1997 to raise proceeds to help fund his next growth area: Property. The timing was fortuitous, as property prices corrected significantly as the Asian Financial Crisis raged on, and he could amass a growing portfolio of properties, largely strata-titled retail shops within suburban malls. The value of the properties grew steadily from $15 million to $250 million in around a decade.

 

This was also when Second Chance aggressively grew its First Lady brand in Malaysia, opening 48 shops nationwide with a presence in every state. However, it started to lose traction in the mid-2010s when competition from other retailers grew. Enticed by more social media and online-savvy sellers, First Lady started losing customers, forcing the company to exit this business slowly. Currently, two First Lady outlets are left &mdash one in Tanjong Katong Complex and another at Kuala Lumpur&rsquo s Jalan Tuanku Abdul Rahman, a company-owned building.

 

The apparel business is one of many affected by online commerce. The property business was impacted, too, as Second Chance&rsquo s tenants see less footfall. Realising that the outlook for this business has turned cloudy, Mohamed Salleh started selling the properties seven years ago. &ldquo It got even worse during the pandemic when we had to give our tenants 50% discounts to survive,&rdquo he recalls.

 

As a result of the gradual disposal, Second Chance&rsquo s property portfolio value has dropped from more than $250 million at the peak to $121.64 million at the end of FY2022, which ended Aug 31, 2022. With fewer properties for rent and lower rental rates collected, rental revenue for 1HFY2023 was $1.54 million, down 29.36% y-oy from $2.18 million collected in 1HFY2022. Meanwhile, revenue from the securities segment was up 10.46% to $3.38 million over the same period.

 

On March 29, the company reported that earnings for its 1HFY2023 doubled to $4.61 million over 1HFY2022, boosted by a gain from selling investment properties. Year to date, the company&rsquo s share price has declined 2.08% to close at 23.5 cents as of April 12, below its net asset value of 31.94 cents as of Feb 28, a slight increase from 30.59 cents as of Aug 31 2022.

 

Identifying strong companies

 

Second Chance can recycle its proceeds into high dividend-yielding companies with strong fundamentals by consolidating its business and gradually selling its properties. At the start of the pivot, Mohamed Salleh acknowledges that some of his shareholders have expressed concerns about this new business. He has been showing that his stock picks are based on sound reasoning.

 

One gauge he used was to look for fundamentally strong and profitable companies, such as those in financial services and telecommunications, but yet, whose share prices dropped by at least half from before the pandemic. Many of these companies could be found in China, which suffered from selldown by international investors after former US president Donald Trump&rsquo s executive order prohibiting US investments in Chinese companies deemed to be either owned or controlled by the Chinese military. Similarly, he has also been hunting for such bargains in Hong Kong, as companies operating there have suffered from multiple waves of turmoil and volatility since 2019.

 

In an update to SGX on April 10, the company&rsquo s top 10 holdings, based on fair value as at Feb 28, are Citic, China Mobile, China Unicom, China Citic Bank, Agricultural Bank of China, Chongqing Rural Commercial Bank, Starhill Global REIT, China Construction Bank, CapitaLand India Trust and Singapore Telecommunications.

 

Outside the top ten, other Singapore-listed stocks which Second Chance holds include Hongkong Land, Golden Agri-Resources, Yangzijiang Financial Holding, Keppel Corp, Sats, and SIA Engineering, says Mohammed Salleh in the interview. Second Chance&rsquo s portfolio spans 102 companies, of which 56% are listed in Greater China, 40% in Singapore and the remaining 4% in Australia.

 

The company has been funding these investments from a mix of proceeds from its business plus bank loans. Mohamed Salleh tries to balance keeping the gearing low and looking out for new buying opportunities. &ldquo As of now, we are at 0.36. We will try and maintain it below 0.4. We are slowing down but still looking to capture opportunities,&rdquo says Mohamed Salleh.

 

One counter which caught his eye recently was Link REIT. On Feb 13, Hong Kong-listed REIT announced a one-for-five rights issue to raise US$2.5 billion ($3.33 billion). Offered at HK$44.20 ($7.50), the exercise received strong demand from investors, but its share price dropped from the year&rsquo s high of HK$62.83 as of Feb 3. At around HK$51 as of April 11, the REIT, the largest in Asia, yields nearly 6%.

 

Mohamed Salleh acknowledges that in the current post-pandemic world, it is not easy to find similar buying opportunities. But the company is willing to study more markets like Indonesia and Malaysia to expand and further diversify its portfolio, allowing higher dividend income.

 

One example he gave is Top Glove, which has seen its share price surge and drop with the worst of the pandemic behind. Nonetheless, Mohamed Salleh likes the strong fundamentals of this company, the world&rsquo s largest glove maker. &ldquo These are the types of companies we will be looking for. But it would require extensive research, capability and commitment to keep our investment holdings should we need to do so,&rdquo he says.

 

MAINBOARD-listed company Second Chance Properties&rsquo net profit for the first half (H1) of its financial year ending Feb 28, 2023, doubled to S$9.2 million from S$4.6 million in the year-ago period.

 

This was mainly due to a gain of S$4.33 million on disposal of investment properties, the group said in a bourse filing on Wednesday (Mar 29).

 

The group deals in retailing ready-made garments, holds property as investment for rental income and invests in securities. It sold seven investment properties since the end of the last financial year.

 

The same reason that contributed to the rise in profits is, however, associated with a drastic 29.4 per cent or S$640,000 drop in rental revenue from properties to S$1.5 million.

 

This business segment contributed to an 8 per cent or S$1.3 million drop to its H1 revenue, which came in at S$14.8 million, from S$16.1 million a year ago.

 

Also contributing to the topline decline was a 10.9 per cent drop in revenue derived from its gold business segment. The segment brought in S$9.3 million in H1, owing to &ldquo general market conditions&rdquo , versus S$10.4 million a year ago.

 

The group reported a negative working capital of S$40.4 million as at Feb 28, as it utilised short-term borrowing facilities, which come with a flexible repayment schedule.

 

Commenting on factors or events that may affect the group in its next reporting period and the next 12 months, it said its gold business would continue to remain profitable and operate in company-owned premises in City Plaza.

 

While rental income has fallen and will decrease further due to the disposal of seven investment properties, dividend income should increase significantly, as the group continues to add more high-yielding dividend stocks to its portfolio, it said.

 

&ldquo Market forces, interest rates as well as government stimulus measures will continue to determine the performance of the financial instruments sector,&rdquo it noted.

 

No dividend has been declared for the half year, as the management has decided to declare it at the end of the financial year with the full-year results announcement.

When Second Chance Properties announces its 1HFY2023 results for the six months to Feb 28, it is likely to report a significantly higher net profit.

 

" Based on the information currently available and the management&rsquo s preliminary review of the unaudited consolidated financial statements of the Group for the half year ended Feb 28, 2023, it is expected that the Group&rsquo s net profit attributable to shareholders of the Company for 1H2023 will increase significantly when compared to the net profit after tax of $4,601,550 for the financial period ended February 28 2022," the company says in an SGX announcement.

 

The expected increase due to the gain on disposal of few investment properties. " Additionally, there is a realized gain of $9.46 million upon cash acquisition as well as disposal of few equity instruments held by the Group and classified as financial assets, at fair value through other comprehensive income. This gain however, is taken directly to equity through retained earnings," Second Chance says.