Shares in Boto International Holdings, the world's biggest maker of artificial Christmas trees, plunged more than 10 per cent yesterday after the company said it would sell its core business for about HK$1 billion in cash.
Boto will switch its focus to animated computer graphics, a start-up business it entered 18 months ago that has yet to generate revenue. It will rename itself Imagi International Holdings.
Boto's shares initially surged on the news, touching 40 HK cents, before ending at 30.5 cents, down 10.29 per cent.
The company's profitable Christmas tree and leisure furniture business will be sold to a company 70 per cent-owned by the Washington-based Carlyle Group, one of the world's biggest private equity investors.
The other 30 per cent will be held by Boto founder and chairman Michael Kao Cheung-chong and his family trust. The deal will be subject to independent shareholder approval.
A 'substantial part' of the net proceeds would be distributed to shareholders as a special cash dividend, the company said.
'Christmas festive products in the US and the company's principle products are reaching a relatively mature stage with low growth prospects as compared to the high growth potential of the three-dimensional computer graphics animation business,' it said.
Corporate development director Terry Tse Chi-man said orders from Boto's largest customer, the US retailer Kmart, had dropped as much as 20 per cent and he expected the impact would be reflected on its profit this year. Kmart filed for Chapter 11 bankruptcy protection in January.
Christmas tree sales accounted for almost 97 per cent of Boto's turnover last year.
Orders for Christmas trees were slow compared with the same period last year.
'It is the right time for the group to realise its investment,' he said.
Mr Tse said the company aimed to reinvent itself into one of Asia's leading 3-D computer graphics animated cartoon studios within three years.
So far, the animation business has put all its resources into producing a 26-part television cartoon series called Zentrix, which it expects to start generating revenue from the second quarter.
In September, Boto deputy managing director Philip Lam Pak-kin said: 'We're not losing sight of our core business.'
He was responding to analyst concerns over Boto's decision to expand into entertainment portal and television production.
The present Imagi Group is managed by Francis Kao Wai-ho, the chairman's son.
Margin Call - Markets Post
ncG1vNJzZmivp6x7tK%2FMqWWcp51krrPAyJyjnmdjbIJ6g5Vomaisn2LAprjLrGScoKKewLW5wKxkraqVmsBufcFmrqiqm2Kwor7TqKanqw%3D%3D