- Yeo Hiap Seng (M) Bhd (YHSM) announced that it had yesterday
received a privatisation offer via a selective capital reduction and repayment
exercise from parent company Yeo Hiap Seng Pte Ltd (YHSPL).
- YHSPL owns a 61.15% equity stake in YHSM. The proposed
corporate exercise will result in a total capital repayment of RM213.6mil.
- This translates into a cash of RM3.60/YHSM share.
- At the offer price of RM3.60/share, this values the group
at an FY12F PE of 20x based on our forecast, and an implied P/B of 2x based on
its NTA of RM1.80/share as at 1QFY12.
- The offer price is 7.6% below our fair value of RM3.90/share.
But, this represents a premium of 18%based on its 5-day VWAP of RM3.04/share,
after adjusting for a final dividend of 9 sen/share (less 25% tax) payable on 9
July 2012.
- Given the small discount to our fair value, we deem the proposed
offer price to be fair. Based on recent M&A deals, YHSM’s implied valuation
appears to be more attractive than its consumer peers.
- YHSM’s trailing PE of 25.7x (based on FY11’s core EPS of 14
sen/share) is higher than the proposed privatisation of KFC Holdings Bhd at 22x
PER, as well as the disposal of bottler Permanis Sdn Bhd by CI Holdings Bhd to
Asahi Group Holdings Ltd at 24.7x back in July 2011.
- Management is concerned about sustaining its dividend track
record (historical payout: 50%), citing substantial capex investments and
rising cost of raw materials and A&P
expenses.
- We believe its expansion into Indonesia, where plans are in
place for the setting up of a bottling plant, could be a key factor. Capex is
at an estimated RM200mil (FY12F-14F).
- The completion of the proposed corporate exercise is expected
to be in 2H 2012, pending the necessary approvals from both the authorities and
shareholders. Institutional shareholdings is <5%.
- We are downgrading YHSM to a HOLD with a fair value of RM3.60/share
in lieu of the proposed privatisation. We expect the share price to gap up once
trading resumes today.
Source: AmeSecurities
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