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Singapore’s Big Winner for the Week: Brooke Asia Ltd

Shares at Brooke Asia Ltd (SGX: 5OY) surged by 23.1% since last Friday to close at S$0.133 yesterday. With the Straits Times Index (SGX: ^STI) going up slightly by 0.2% during the same time frame, Brooke Asia is a big winner in Singapore’s share market this week.

Brooke Asia is currently a “cash company” as it does not have any operating subsidiaries and businesses. It has disposed the subsidiaries it used to own to Brooke Asia’s holding company, Latitude Tree Holdings Berhad.

On 3 October 2014, the firm entered into a non-binding term sheet with another firm that is involved in cultivation, research, development, production, and sales of sweet potato snack food products in China. The company that is going to be acquired is based in Fujian province, China, and it produces six main product offerings – sweet potato candies, fruit crisps, coarse grain snacks, coarse grain pastries, preserved fruits and other snacks. Most of the products are marketed through brands owned by the firm and are sold through various channels like its flagship and retail stores, e-commerce platforms and major supermarket chains, etc.

The rationale for the transaction is to allow the firm to venture into a new business area with a proven track record and a potential to grow. This will also satisfy the rules stipulated by Singapore Exchange (SGX) for a cash company.

Under SGX’s Rule 1017(2) of the Catalist Rules, SGX will “proceed to remove an issuer from the Official List if it is unable to meet the requirements for a new listing within 12 months from the time it becomes a cash company”. The disposal of the subsidiaries were completed on 23 January 2014.

The acquisition will be paid for by allotment and issuance of new shares to its vendors. This may result in a reverse takeover, the company said.

Brooke Asia is currently trading at 1.4 times its historical book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.