Hunt continues for undervalued companies

Privatisation fever on the local bourse is not abating, with five takeover bids launched in the first quarter and one more possible offer being finalised.
Privatisation fever on the local bourse is not abating, with five takeover bids launched in the first quarter and one more possible offer being finalised.ST PHOTO: LIM YAOHUI

No more household names in delisting spotlight but watch trend of 'stake reviews'

Privatisation fever on the local bourse is not abating, with five takeover bids launched in the first quarter and one more possible offer being finalised.

In contrast, there have been just three new listings on the Singapore Exchange so far this year, namely Kimly, Dasin Retail Trust and Samurai 2K Aerosol.

Household names no longer feature strongly in the delisting camp after prominent exits last year, which included Tiger Airways, Osim International, Eu Yan Sang and SMRT.

But analysts are not ruling out more high-profile delistings.

The year began with Global Logistic Properties confirming it was in early talks with various parties on a possible sale of the company, as part of a strategic review requested by its largest shareholder GIC.

Major shareholders of property group United Engineers and telco M1 are also mulling over block sales of their stakes. Even if privatisation is not the end-game here, any buyer scooping up more than 30 per cent of a listed firm's capital would be triggering a compulsory takeover offer under Singapore rules.

It is no surprise that big shareholders have begun to review their stakes, said Mr Justin Tang, director of global special situations at Religare Capital Markets: "They are likely at a stage where they cannot extract more value from their assets. The Straits Times Index is at its highest level since August 2015, so it would be a good time for exits."

Prices of second- and third-liner stocks have generally risen too, "so the delisting impetus may be less strong", said Ms Andrea Chee, partner at law firm Shook Lin & Bok.

FACTORS

The lacklustre local stock market, lack of coverage, and the substantial proprietary research and due diligence required have resulted in this segment trading at attractive valuations.

QUARZ CHIEF INVESTMENT OFFICER JAN MOERMANN, on market opportunities.

"But privatisations may continue for specific reasons in certain sectors, such as Oei Siu Hoa's offer for Top Global, which seems primarily motivated by the exposure to Qualifying Certificate penalties for unsold homes."

And there will always be bosses keen to go private because they feel their business is undervalued.

For many, thin trading liquidity is a serious concern, said Mr Tang: "If you look at Kingboard Copper Foil, for example, it hardly trades. On a good day, the value traded is maybe $500,000... So the only person who can unlock value is the major shareholder, or a third party who offers to buy the company."

Yet the valuation mismatch is also what draws bargain-hunters to Singapore. One of them is Quarz Capital Management, which specialises in picking Singapore firms with a market cap of below US$2 billion ($2.8 billion).

Quarz chief investment officer Jan Moermann said: "The lacklustre local stock market... (has) resulted in this segment trading at attractive valuations. A number of these companies have strong positions in their niche markets which are not easily understood by investors due to the lack of broker coverage or investor relations."

Spotting undervalued targets continues to be a key theme. In fact, the number of takeover offers so far is seven, counting those where the offeror expressed no intention to delist the stock, as with OUE and Lippo's offers for International Healthway and Healthway Medical Corp, respectively.

Another counter to watch is Sabana Reit, the industrial property trust in which logistics player e-Shang Redwood, backed by private equity firm Warburg Pincus, has built up a 5 per cent stake as unit holders gear up for a proxy fight with the Reit manager.

A version of this article appeared in the print edition of The Straits Times on April 03, 2017, with the headline 'Hunt continues for undervalued companies'. Print Edition | Subscribe