Metech International Offloads Loss-Making Lab-Grown Diamond Subsidiary for S\$1—Major Shift in Corporate Strategy

Key Points from Metech International’s Disposal Announcement

• Disposal of 80% Stake in Asian Eco Technology Pte. Ltd. (AET): Metech International is selling its 80% interest in AET, a lab-grown diamond manufacturer, to Wuhan Xilu Trading Co., Ltd. for a nominal consideration of S\$1.00.
• Massive Waiver of Intercompany Loans: Metech will waive approximately S\$4.78 million in loans owed by AET, which have already been impaired on the books, minimizing further impact on Metech’s net tangible assets and earnings per share.
• Purchaser Assumes All Liabilities: Upon completion, the buyer will take on all existing liabilities of AET, including S\$0.27 million in payables, relieving Metech of future exposure to AET’s debts.
• Loss-Making Business Divested: AET reported a net loss of S\$0.69 million in FY2024, with only S\$45,000 in revenue. The subsidiary had net tangible liabilities of S\$4.97 million as of year-end 2024.
• Non-Cash Loss on Disposal: Metech expects to record a non-cash loss of approximately S\$0.79 million from the transaction.
• Strategic Rationale: The divestment is part of Metech’s strategy to exit a persistently loss-making business and refocus on new growth areas, notably food waste and health supplements, which were added in December 2024.
• Shareholder Approval and SGX Waiver: While the deal size is significant relative to Metech’s market capitalization, the company intends to seek a waiver from SGX for the requirement to hold an extraordinary general meeting (EGM) for shareholder approval, citing the non-core nature of the asset.

Investor-Relevant Details and Price-Sensitive Highlights

1. Metech International’s Corporate Pivot
This disposal represents a major shift in Metech’s business strategy. Shareholders should note that the company is exiting the lab-grown diamond segment, which has struggled with losses and geopolitical headwinds. The move is aimed at reducing liabilities and focusing on more promising sectors, potentially impacting future profitability and share valuation.

2. Financial Impact and Risks
– Balance Sheet Improvement: The removal of AET’s liabilities (net tangible liabilities of S\$4.97 million) will significantly clean up Metech’s balance sheet.
– Earnings per Share: The pro forma financials show a reduction in loss per share—from S\$1.41 cents to S\$1.09 cents after the disposal, indicating an immediate positive effect on reported losses.
– No Material Change in Risk Profile: The Board considers AET a non-core asset. Metech’s new focus on food waste and health supplements suggests a new growth narrative that could attract investor interest.

3. Shareholder and Regulatory Considerations
– Shareholder Approval: Given the size of the deal (consideration plus waiver totals S\$4.78 million, or 84.98% of market cap), SGX rules typically require shareholder approval. Metech intends to seek a waiver, which could expedite the strategic transition but also reduce direct shareholder oversight of the transaction.

4. Potential Share Price Movers
– Exit from Loss-Making Segment: Investors may react positively to Metech’s move to offload a persistently loss-making business and eliminate substantial liabilities. – Strategic Refocusing: The company’s pivot to new areas of food waste management and health supplements could drive re-rating, depending on execution. – One-Off Non-Cash Loss: The non-cash disposal loss may weigh briefly on sentiment, but the longer-term impact is balance sheet improvement.

Full Transaction Details

• Stake Sold: 4,106,120 shares, representing 80% of AET
• Buyer: Wuhan Xilu Trading Co., Ltd., an unrelated Chinese consumer products company seeking entry into lab-grown diamonds
• Consideration: S\$1.00 cash
• Completion Conditions: Approvals from directors, regulatory authorities, and execution of sale documents; completion targeted by 30 April 2026
• Liabilities Assumed: All current and future AET liabilities post-completion
• Waiver: Metech waives all loans and amounts due from AET (S\$4.78 million)
• Impact on Ownership: After completion, AET will cease to be a Metech subsidiary

Summary and Outlook

Metech’s disposal of its lab-grown diamond subsidiary marks a decisive step away from a loss-making venture and sets the stage for renewed focus on growth sectors. Investors should closely monitor meteoric developments in Metech’s new business lines, as these may determine the next phase of value creation. The transaction is significant relative to the company’s size, and the strategic reset could be price-moving as market participants recalibrate expectations.

Disclaimer

This article is for informational purposes only and does not constitute financial advice or a recommendation to buy or sell shares in Metech International Limited. Investors should conduct their own due diligence and consult with professional advisers before making investment decisions.

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