Cosmos Seeks 51% Control of Orisystems in Share Deal

Cosmos Technology International Bhd plans to acquire a 51% stake in Orisystems Opto Sdn Bhd, giving it majority ownership of an electronics manufacturer as it seeks more control over product development and production. The proposed purchase price is RM16.524 million, payable entirely in newly issued Cosmos shares.

The rationale goes beyond expansion: Cosmos has faced currency fluctuations and delivery times of up to seven or eight months for products sourced overseas. Managing director Datuk Chong Toh Wee said those supply-chain uncertainties prompted Cosmos to explore its own assembly and manufacturing capabilities. The proposal would bring Orisystems’ technical capacity into that effort.

A majority stake, paid in shares

Cosmos said earlier in the week that it proposed to acquire the 51% stake for RM16.52 million by issuing new shares. The indicative consideration of RM16.524 million would be met with 33.048 million Cosmos shares priced at 50 sen each. That issue price represents a 27.71% premium over Cosmos’ five-day volume-weighted average market price of 39.15 sen through October 16.

Shares, rather than cash, sit at the center of the proposed relationship between the companies. Chong said he chose not to use cash or a mix of cash and shares so Orisystems’ shareholders could share in Cosmos’ future growth. “If Orisystems takes cash, it is a one-off transaction. But if they hold our shares, when Cosmos grows, they also grow with us,” he said. “This is about building a long-term relationship.”

That growth remains a prospect, not a completed result. Cosmos’ shares ended the previous day’s session five sen lower at 37 sen, and the stock traded at a historical price-to-earnings ratio of 96.05 times. The proposed issue price is 50 sen per share. Chong said he considered that price low given Cosmos’ growth potential, and said a higher price could be justified as revenue increased and its price-to-earnings ratio declined.

Production plans and a promise tied to profits

Orisystems makes electronics, including semiconductor-related components, chip-on-board technology for LED modules, smart-card modules and electronic components for aerospace applications. It hasn’t previously made products for the water sector. The companies have begun collaborating on product design and development; they’ve produced prototypes, which are undergoing testing.

“Proof-of-concept has yet to be completed,” Chong said. He added that Cosmos was considering branding the products locally under its own brand. Chong said the fundamental principles of electronic manufacturing services were similar across industries and that “the difference is only the product range.” Orisystems is interested in entering the water sector, which it views as a growth opportunity amid potential projects.

The proposed acquisition includes a profit guarantee. Orisystems would have to earn at least RM3.6 million after tax in each financial year ending December 31, 2027, 2028 and 2029, and at least RM10.8 million cumulatively over those three years. Those targets set a measurable condition on the deal, while the product prototypes remain under testing and proof-of-concept remains incomplete.

The pitch behind the deal

Chong said he presented Orisystems’ shareholders with Cosmos’ future prospects, including potential jobs, market share and government allocations, before they agreed to accept the offer. He described their willingness to accept despite uncertainty about Cosmos’ ability to realize its potential as a sign of trust in the company.

The proposed transaction links Orisystems’ shareholders to Cosmos’ performance through new shares, while giving Cosmos a majority stake in Orisystems. Its stated rationale is to strengthen product development and manufacturing and address supply-chain uncertainties. The promised returns, the water-sector opportunity and projected growth remain subject to the companies’ plans and the performance figures set out in the agreement.