Unsatisfactory response from Datapulse Technology leaves yet more unanswered questions


Published December 25, 2017

On December 23, 2017, Datapulse Technology responded to my December 19 article in Business Times (“Datapulse’s shareholders should press for answers”) through an SGX announcement. The response, like its earlier responses, is unsatisfactory and leaves more unanswered questions.

Half of “The Then Board”

The New Board has now confirmed that the three former independent directors were not involved in the appointment of the new directors after all, even though it had previously said that “the then board” was involved. It now said that “the then remaining directors of the Former Board” appointed the new directors. In effect, it was the executive half of the then board that did it (two out of three of whom resigned immediately afterwards) . Therefore, Datapulse has now confirmed that the executive directors appointed the independent directors who are supposed to oversee the executive directors, and assessed whether they are independent of the management (including the executive directors) and major shareholders. So much for a proper nominating process.

Independence, Competencies and Experience of the New Directors

Datapulse defended the independence, competencies and experience of the new directors. It said that shareholders will have an opportunity to consider their independence, competencies and experience and vote accordingly when they are proposed for re-appointment at the next upcoming AGM. Unfortunately, the next AGM is not due until November 30, 2018. That is an eternity if the new board is not independent and does not have the right competencies and experience.

With regard to the new directors, Datapulse also said that “it may be premature for Shareholders or other persons (like me, I guess) to question their competencies prior thereto [them being given time to demonstrate their ability to lead the new management of the Company]”. How can shareholders have confidence in the new board when two of the three independent directors have no prior experience in listed companies – and the new Board which was formed on December 11  had bought a company by December 12, when it would clearly have been impossible to do proper due diligence on the acquired company? As I mentioned, the new Board also relied on the independent valuation provided by the vendor for the three properties that formed part of the acquisition. This hasty acquisition has already given shareholders  every reason to question the competencies of the new Board.

The company said that the new independent directors meet the criteria for independence in the 2012 Code of Corporate Governance. The 2012 Code – in Guidelines 2.3 and 4.3 – makes it clear that in assessing independence, the specific circumstances and relationships set out in Guideline 2.3 “are not exhaustive” and that the assessment of independence should consider “any other salient factors”. The company makes repeated reference to the 2012 Code but appears to adopt a technical, box-ticking approach without necessarily considering other relevant factors.

In the case of Mr Ng Der Sian Thomas and Mr Rainer Teo, the company initially said that they were business acquaintances of Ms Ng Siew Hong, the new controlling shareholder. It has now said that they had previously approached the firm of Ms Ng to provide accounting services for their own companies and/or their clients. How extensive are the business relationships between Mr Ng/Mr Teo  and Ms Ng and how far back do these relationships go? While Guideline 2.3 only refers to a director who is “directly associated” with a 10% shareholder and has a rather narrow definition of what constitutes “directly associated”, long and extensive business relationships would certainly have the potential to impair independence.

Further, do these two directors, for example, currently have any business relationship with Ms Ng from which they derive economic benefit and who may therefore be perceived to act in her interest in order to preserve and enhance those relationships?

In terms of Mr Ng’s and Mr Teo’s independence from Datapulse’s management and business relationship with Datapulse, can the company confirm that if there is any relationship with any of the current management or whether they are providing any other services to Datapulse?

In the case of Mr Low Beng Tin, the company says that Mr Low did not know Ms Ng but was introduced to her through Mr Ng Cheow Chye, the former CEO and who currently remains as an executive director. Mr Low also sold his shares to Ms Ng through the introduction of Mr Ng Cheow Chye.  What is the relationship between Mr Low and Mr Ng Cheow Chye that led Mr Ng to know Mr Low well enough to facilitate Mr Low’s share sale and his introduction to Ms Ng as a potential independent director/chairman?

Since Mr Low did not know Ms Ng prior to her becoming the new controlling shareholder, what due diligence did he do before agreeing to become the new Chairman of Datapulse, knowing that Ms Ng, as the new controlling shareholder, would be in the position to call most of the shots? If he did not know the plans for the company and what business it may diversify into, how would he assess whether he would be able to add value to Datapulse?

[On December 24, I posted an article “Did Datapulse Technology disclose inaccurate information in its director appointment template?” which points out apparent inaccuracies in the information provided in the appointment template for Mr Low.]

Datapulse also provided more information on the new Executive Director and CEO, Mr Kee Swee Ann. While he has some relevant experience in the new business that Datapulse has now entered into, the Board has to exercise its own independent judgement regarding the acquisition of Wayco Manufacturing (M) Sdn Bhd.

Acquisition of Wayco Manufacturing (M) Sdn Bhd

The new Board has reiterated that the purchase consideration for Wayco Manufacturing (M) Sdn Bhd (Wayco) “was agreed to on a willing buyer, willing seller basis and on arms-length commercial terms.”

For the benefit of other shareholders and readers, I have searched the background of Wayco, and its sole shareholder, Way Company Pte Ltd (Way).

Wayco was incorporated in 1984, has a Johor Bahru  registered address, and issued ordinary capital of RM1,000,000. It has three directors, two of whom are resident in Singapore.  As of December 31, 2016, it had net assets of RM3.79 million. Its revenue for that last full financial  year was RM4.1 million, with profit after tax of RM125,801.

According to Datapulse’s announcement on December 15, 2017, the unaudited adjusted net tangible value of Wayco as at June, 30, 2017 was RM7.43 million (after adjusting for the “independent valuation” of three properties). The unaudited net profit after tax for the 6-month period ending June 30, 2017 was RM160,632, or RM321,268 on an annualised basis.

Based on the unaudited annualised net profit after tax, Datapulse estimated the price/earnings ratio represented by the purchase consideration to be 32.9 times.  However, this is based on an assumed/estimated growth of 155 percent in net profits after tax compared to the last financial year, and calculated on the basis of unaudited half-yearly accounts. If the net profits after tax from the last financial year’s accounts was used, the price/earnings ratio would be 84 times. In terms of price to book value, the company’s estimate is approximately 1.4 times.  This is based on a 96 percent increase in net asset value compared to the last financial year, with the increase in net asset value based on the “independent valuation” of three properties sourced by the vendor. If the net asset value from last year’s accounts was used, the price to book would be about 2.79 times.

The holding company/vendor, Way, has an issued ordinary capital of $1,000,000 and one Singapore individual shareholder, who is also one of the directors of Wayco.

The new Board has not explained why there is a need to rush the acquisition, with the new Board being formed and the acquisition being completed all within five business days.

Puzzling historical transactions

In response to my article about certain historical transactions involving the company and Lian Beng group, the company has merely said that the terms of these transactions have been previously disclosed and the new Board is not in a position to comment on them. However, one of the directors who was present at that time, Mr Ng Cheow Chye, remains on the board and may be able to shed light on these transactions. Should the new Board not ask him and review these transactions? Does the new Board’s stance mean that it will not review any matter that did not occur under its watch?

Future plans

Given that Datapulse’s traditional manufacturing activities is facing considerable technological disruption, it is hardly surprising that its financial performance has been deteriorating. I am not questioning the need to diversify Datapulse’s business, but rather with the lack of transparency on whether the Board plans to continue its current business, its future plans, the quality of the decision-making and whether the new Board has the independence, competencies and experience to objectively  and competently evaluate diversification opportunities.

Mak Yuen Teen

 

Comments are closed.