1. INTRODUCTION
The Board of Directors of D & O Ventures Berhad (“D&O” or “the Company”) are pleased to announce that Omega Semiconductor Sdn Bhd (Omega), a wholly owned subsidiary of D&O, has on 18 August 2008 entered into a joint venture agreement with AE Technologies (GD) Co., Ltd, (“AE”) (collectively known as the “Parties”) to assemble and sell lighting applications in the Peoples’ Republic of China (“PRC”) (hereinafter referred to as “the Proposed Joint Venture”).
2. DETAILS OF THE PROPOSED JOINT VENTURE
The salient terms of the Joint Venture Agreement (“JV Agreement”) are as follows:
(i) The Parties shall incorporate a new company bearing the proposed name of “Aeopto Technologies Co., Ltd. (“Aeopto”) or such other name as may be approved by the relevant regulatory authority in the PRC.
(ii) Aeopto shall principally be involved in the business of research and development of semiconductor application technologies; Manufacture, sales and assembling of semiconductor electronic and electrical component; LED lighting illumination and display application and module.
(iii) Aeopto shall have a registered capital of RMB10,000,000.
(iv) Omega and AE respectively shall subscribe for 51% and 49% of the registered capital of Aeopto.
(v) Aeopto shall have 5 directors. Omega shall nominate 3 directors one of whom shall be the Chairman of Aeopto. AE shall nominate 2 directors for Aeopto.
(vi) The JV Agreement shall be for a period of 30 years commencing from the date of incorporation of Aeopto unless otherwise extended by the relevant regulatory authority upon application of the Parties.
(vii) AE will transfer all its manufacturing facilities, accessories and ancillary equipment to Aeopto. Thereafter, AE shall not engage in any competing businesses or operations with Aeopto.
3. INFORMATION ON AE
AE was incorporated in Guangdong Province, PRC, on 3 March 2000 as a limited liability company. It is primarily involved in research & development, design, assemble and manufacture LED (Light Emitting Diode) lighting application uses LED components. Its principal place of business is located at F Building, Keng Kou Digital Base, No. 9, Hua Xi Road, Guangzhuo, 510360 PRC.
4. RATIONALE FOR THE PROPOSED JOINT VENTURE
Currently AE Technologies (GD) Co., Ltd uses LED components purchased from multinational as their base material.
Omega who is principally engaged in the manufacturing of LED (Light Emitting Diode) component is in the supply chain and is able to supply AE with the require material.
The Proposed Joint Venture will provide Omega the opportunity to expand its current component manufacturing business and integrate into finished product application technology.
The consumption of these LED components in the JV Company will in turn boost the production of thru-hole and SMT LED in Omega Semiconductor Sdn Bhd and Dominant Semiconductors Sdn Bhd (associate company for D & O) respectively.
5. PROSPECTS OF THE JV CO
The Proposed Joint Venture will certainly facilitate Omega and AE to bring into the JV Company their respective experienced management, technical and marketing personnel, R & D know-how and industrial knowledge.
AE shall cease to engage in any competing businesses or operation after the transfer of its assets to the JV Company the roll over of revenue to JV Company is almost immediately.
6. SOURCE OF FUNDS
The proposed investment is RMB5,100,000 equivalent to approximately RM2.5million, which will be funded by internally generated funds.
7. RISK FACTORS
Generally, the JV Co operates in a similar industry as AE and Omega which engaged in research and development of semiconductor application technologies; Manufacture, sales and assembling of semiconductor electronic and electrical component; LED lighting illumination and display application and module. In this respect, the potential business risks faced by Omega pursuant to the Joint Venture shall not be material except for the risks inherent in the broad sector of manufacturing which include increase in labour and raw material costs, shortages in labour and raw materials, rapid technologies chance, competition from other manufacturers, fluctuation in the exchange rates and general economic and business conditions. These risks are addressed as part of Omega’s ordinary course of business.
Pursuant to the Joint Venture in PRC, Omega may expose to some other risks as follow (which may not be significant):
7.1 Political and regulatory risks in the PRC
The JV Co will be incorporated in the PRC and governed under the laws of the PRC. In this respect, any adverse developments in political, economic and regulatory conditions in the PRC could materially and adversely affect the financial prospects of the JV Co and/or Omega. Amongst the political and regulatory uncertainties are the risks of war, riots, changes in political leadership, expropriation, nationalism, re-negotiation or nullification of existing sales orders and contracts.
Whilst the JV Co will attempt to mitigate this by adopting prudent financial management and efficient operating procedures, there is no guarantee there will not be any changes in government policies or regulations that may be unfavourable to the JV Co.
7.2 Joint venture risks
Like all businesses, the JV Company may potentially expose to risks associated with the assimilation of new operations and personnel, the diversion of financial and management resources from existing operations, and the inability to successfully integrate the joint venture with its current business. There is also no assurance that the anticipated benefits from the Joint Venture will be realised, and that the Omega will be able to generate sufficient revenue from the Joint Venture to offset associated joint venture costs.
8. EFFECTS OF THE PROPOSED JOINT VENTURE
(i) Share Capital and Substantial Shareholdings
The Proposed Joint Venture will have no effect on the issued and paid-up share capital of D&O or the shareholdings of D&O’s substantial shareholders.
(ii) Earnings, Net Assets and Gearing
The Proposed Joint Venture is not expected to have any material effect on the earnings, net assets and gearing of D&O Group for the financial year ending 31 December 2008, but it is expected to contribute to the future earnings of the D&O Group.
9. INTERESTS OF THE DIRECTORS, MAJOR SHAREHOLDERS AND/ OR PERSONS CONNECTED TO THEM
None of the Directors and/or major shareholders of D&O and/or any persons connected to them have any interest, direct or indirect, in the Joint Venture.
10. DIRECTORS’ STATEMENT
Having considered all aspects of the Joint Venture, the Board of D&O is of the opinion that the Proposed Joint Venture is in the best interest of D&O.
11. APPROVAL REQUIRED
The Proposed Joint Venture does not require approval from the shareholders of D&O or regulatory authorities but it is subject to approval of the relevant authorities in the PRC.
12. ESTIMATED TIME FRAME FOR COMPLETION
The Board of D&O expects the Proposed Joint Venture to commence business by the fourth quarter of 2008.
Announcement dated 18 August 2008