Cosmos Deal Ties Orisystems Sellers to Stock Growth

Cosmos Technology International Bhd plans to buy 51% of Orisystems Opto Sdn Bhd for RM16.524 million in newly issued shares, tying the sellers’ return to Cosmos’ future performance instead of paying them cash. Managing director Datuk Chong Toh Wee said both companies would share in Cosmos’ growth under the arrangement. The deal aims to expand Cosmos’ product development and manufacturing as it responds to supply-chain uncertainties.

The terms of the deal

Cosmos will issue 33.048 million shares at 50 sen each to pay for the proposed stake. That price represents a 27.71% premium over Cosmos’ five-day volume-weighted average market price of 39.15 sen through October 16. The company will satisfy the full purchase consideration through the share issue, not cash or a mix of cash and shares.

“If Orisystems takes cash, it’s a one-off transaction. But if they hold our shares, when Cosmos grows, they also grow with us,” Chong said. “This is about building a long-term relationship.” Orisystems’ shareholders will retain a continuing financial interest in Cosmos, rather than receive a one-time payment for the stake.

The proposed acquisition also includes a profit guarantee. Orisystems must 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 across those years.

Manufacturing and supply chains

Chong said Cosmos had faced currency fluctuations and delivery times of up to seven or eight months for products sourced overseas. Those conditions led the company to explore its own assembly and manufacturing capabilities. Cosmos assessed Orisystems for about one and a half years before concluding that its technical capabilities and expertise would complement Cosmos’ business.

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 made products for the water sector before. The companies have started work on product design and development, and prototypes are undergoing testing.

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

Growth claims and market value

Before Orisystems’ shareholders accepted the offer, Chong said he presented Cosmos’ future prospects, including potential jobs, market share and government allocations. He said he considered the 50-sen issue price low given Cosmos’ growth potential, and added that rising revenue and a declining price-to-earnings ratio could justify a higher price.

Chong also called the shareholders’ acceptance of the offer, despite uncertainty about whether Cosmos could realize its potential, a sign of trust in the company. Cosmos ended the session five sen lower at 37 sen the previous day. Its stock traded at a historical price-to-earnings ratio of 96.05 times.