(The definitions used in this announcement shall have the same meanings as that used in the announcement made by the Company on 8 August 2025 in relation to the Disposal (“Announcement”) unless stated otherwise.)
We refer to the Announcement and the query from Bursa Securities dated 13 August 2025 ("Query") in relation to the Disposal, the Board wishes to provide the following additional information pursuant to the Query:-
1) It is noted from Hong Seng’s previous announcements dated 14 July 2023 and 23 July 2023 that the acquisition of 32.61% equity stake in Classita (“Investment”) was undertaken as the Board believes that the Investment brings long-term value given the promising potential in among others, undergarments manufacturing and property development and construction businesses. In this regard, to provide share of loss and Net Assets (“NA”) of Classita.
Reply
| | Audited as at 30 June 2024 | Unaudited 9-month financial period ended 31 March 2025 | Hong Seng’s share of loss and NA (1) |
| RM’000 | RM’000 | RM’000 and % |
| Net (loss)/profitattributable toowners of Classita | (3,017) | 676 | (763) at 32.61% of sharing |
| NA | 189,280 | 190,918 | 62,258 at 32.61% of sharing |
Note: (1) Represents Hong Seng’s cumulative share of (loss)/profit and NA of Classita in the two reporting periods.
2) Segmental revenue and profit/loss of Classita Group for the past 3 financial years and latest quarter results together with the commentaries of its past financial performance.
Reply
The segmental revenue and profit /(loss) before tax of Classita Group for the 15-month financial period ended FPE 30 June 2022 (“FPE 30 June 2022”), financial year ended financial years ended 30 June 2023 (“FYE 30 June 2023”), 30 June 2024 (“FYE 30 June 2024”) and 9-month financial period ended 31 March 2025 (“FPE 31 March 2025”) are as set out below:-
| | Audited | Audited | Audited | Unaudited |
| FPE 30 June 2022 | FYE 30 June 2023 | FYE 30 June 2024 | FPE 31 March 2025 |
| RM’000 | RM’000 | RM’000 | RM’000 |
| Revenue | | | | |
| Direct Selling/Retail | 5,304 | 2,952 | 18(1) | 17 |
| Property Development and Construction | 63 | -(2) | 4,650 | 2,961 |
| Manufacturing sales | 70,460 | 44,296 | 45,766 | 43,899 |
| Investment holding | - | - | 60 | - |
| Property Investment and Trading | - | - | - | -(3) |
| Total | 75,827 | 47,248 | 50,494 | 46,877 |
| Profit/(Loss) Before Tax (4) | | | | |
| Direct Selling/Retail | (268) | (97) | (47) | (56) |
| Property Development and Construction | (5,336) | (6,239) | (2,372) | 1,274 |
| Manufacturing sales | 7,226 | (1,852) | 277 | (328) |
| Investment holding | (3,380) | (1,306) | 286 | (253) |
| Property Investment and Trading | - | - | - | (17) |
| Total | (1,758) | (9,494) | (1,856) | 620 |
Notes:
(1) Classita Group recorded segmental revenue from direct selling and retail business of RM18,230 for the FYE 30 June 2024, due to sharp decline in sales for Classita Group’s in-house brands as well as strategic shift in focus towards Classita Group’s other business segments.
(2) Classita Group did not record any revenue during the FYE 30 June 2023 and incurred costs due to the reversal of revenue from previous years caused by revocation of units sold in the property development and construction segment, which was caused by the property buyers’ inability to fulfil their financing obligations under the terms of the sale and purchase agreements for the property units sold, during the FYE 30 June 2023.
(3) Classita had on 8 Jan 2025 obtained its shareholders’ approval for the diversification of its existing businesses of Classita Group to include the property investment and property trading.
(4) The segmental profit/(loss) before tax of Classita Group is disclosed in the table above instead of the segmental profit/(loss) after tax as the tax expense for Classita Group is unallocated by segment. Commentaries:-
Classita Group’s revenue during the past financial years/period under review is on declining trend from RM75.83 million for the 15-month FPE 30 June 2022 to RM50.49 million for the FYE 30 June 2024 due to softer revenue growth of Classita Group’s existing business segments, save for the property development and construction segment.
The revenue for Classita Group’s manufacturing sales segment was on declining trend over the past financial years/period under review, from RM70.46 million for the 15-month FPE 30 June 2022 to RM45.77 million in FYE 30 June 2024. The declining revenue also contributed to the continuous losses for the past financial years/period under review, with Classita Group recording a segmental PAT of RM5.58 million for the 15-month FPE 30 June 2022 to a segmental LAT of RM0.29 million for FYE 30 June 2024, primarily due to several factors affecting the export market, including shifting consumer preferences and a heightened competitive landscape with the rise of fast fashion and direct-to-consumer brands, as well as higher shipment costs due to shift towards air freight delivery for orders directly affected by delays in the sea shipping schedule to ensure timely delivery of products to the customers.
Classita Group’s direct selling/retail segment has also faced continuous losses, reporting a segmental LAT of RM4.54 million for the 15-month FPE 30 June 2022 to RM0.05 million for FYE 30 June 2024. These losses were attributed to the sharp decline in sales for Classita Group’s in-house brands, with revenue dropping from RM5.30 million in 15-month FPE 30 June 2022 to only RM18,230 in FYE 30 June 2024, primarily due to Classita Group’s strategic decision to realign its focus on Classita Group’s other business segments in response to changes in consumer preferences and heightened competition from fast fashion and direct-to-consumer brands.
Classita Group’s property development and construction segment has also reported significant losses, with LAT of RM4.85 million for the 15-month FPE 30 June 2022 and RM2.37 million in FYE 30 June 2024. However, despite a recovery in revenue to RM4.65 million for FYE 30 June 2024 (FYE 30 June 2023: no revenue recorded due to the reversal of revenue caused by revocation of units sold in the property development and construction segment), the segment still recorded a LAT of RM2.37 million, largely driven by the reversal of revenue due to revocation of units sold in the property development and construction segment.
Classita Group’s revenue for the current financial period ended 31 March 2025 has increased by RM8.96 million as compared to the corresponding financial period ended 31 March 2024, mainly due to higher export sales generated from the manufacturing segment. Manufacturing segment recorded a higher sale in current financial period ended 31 March 2025 as compared to the preceding corresponding period mainly due to increase in export sales to Germany, Turkey and United States of America. During the current financial period under review, the property development and construction segment booked a slightly higher revenue of RM2.96 million from sale of completed property units.
(Source: Classita’s Abridged Prospectus dated 14 June 2023, 24 December 2024 and annual reports and quarterly report for the financial period ended 31 March 2025 announced on 27 May 2025)
3) To provide further clarification on the rationale for undertaking the Disposal in a short span of time (2 years) before the investment could yield value and returns to Hong Seng Group.
Reply
The Investment in Classita was initially intended to be held over the longer term to realise its anticipated value, in line with the Board’s view at the time that Classita had promising growth prospects in, among others, the undergarments manufacturing and property development and construction businesses. While the prospects of Classita’s businesses remain, Hong Seng has recognised a partial impairment of the Investment based on a value in use calculation using discounted cash flow projections, considering the longer gestation periods required for the property development and construction projects to materialise (as explained in the reply to item 4 below).
In light of this and taking into account that retaining the Investment would require a longer timeframe before the Group could recoup the Investment and generate returns, with such returns being subject to various market and business risks and uncertainties, the Board is of the view that the Disposal is in the best interest of the Group as it represents a more favourable option to divest the Investment, realise immediate cash proceeds, and sidestep potential risks, with the proceeds to be reallocated into the Group’s existing businesses, future business expansions, and/or any future prospective businesses.
4) To explain the reason for the impairment loss of RM34.52 million recorded on the Investment in Classita.
Reply
The Group’s impairment loss on the Investment was recognised in accordance with MFRS 136 Impairment of Assets. The Group determines at each end of the reporting period whether there is any objective evidence that the investments in the associate company or joint venture company is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate company or joint venture company and their carrying values, then recognises the amount in the “share of profit of investments accounted for using the equity method” in profit or loss.
In view of the market price of the Investment being lower than its carrying amount, the Group considers this an indicator of impairment and has assessed the recoverable amount of the Investment, which was determined using a value in use calculation based on projected cash flows over a five-year period, discounted at a rate of 8.16%, and focusing on its main revenue-generating business - the manufacturing business. The property development and construction businesses are excluded from the assessment due to the longer gestation periods of their projects, which make near-term cash flows not readily estimable. This approach reflects the dominant contribution of the manufacturing business to the Investment’s overall cash flows and provides a reasonable basis for determining the recoverable amount.
Based on this assessment, the carrying amount of the Investment exceeds its recoverable amount. Accordingly, an impairment loss of RM34.52 million has been recognised, reflecting the Investment’s expected value in use over the near term.
This announcement is dated 14 August 2025.
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