Friday, June 23, 2017

Wing Tai: 50% discount and still it is reasonable?

Wing Tai Malaysia (Wing TM) has offered to privatise the company with the current controlling shareholder offering the shares at 50% discount from the fair value of RM3.55 to RM3.59.

The summary is here or alternatively one can read the full detail of the advise from Mercury Securities here. I really have doubt over the appointment of the adviser as it is really a small outfit and moreover Mercury is originally from Penang. So was Wing Tai which was Dragon Phoenix many years ago.

Wing TM is currently trading at around the offer price of RM1.80 which means that there has been some buying (by some parties) and the potential of it reaching 90% for compulsory takeover is very high given that there are very loose shareholders in its Top 30 except for the largest shareholder which on paper holds more than 66% - i.e. the Cheng family.

One should take note of the intrinsic value which is below.

I am wondering on the rationale that is provided i.e. lack of trade volume and the offer is a premium from its historical price trade. That is obvious isn't it as who would sell if it is below or at the market price. Just read the rationale provided by Mercury below.


However, no matter what it is I believe that Wing Tai's controlling shareholders and insiders have accumulated enough and it is a difficult fight to keep it afloat and there is no guarantee that the management is going to treat one fairly anyway after this. One less of these kind of company in Bursa Malaysia is for a healthier exchange.

Also, in the future if Mercury provides advise again, do be careful as apparently they also advised on The Store deal.

11 comments:

bl said...

bird of the same black feathers flock together??the advice legally is nothing wrong but morally & ethically is big wrong

nick said...

If you are a shareholder and did not agree to their offer to you. Yet they r successful in privatisation bid n eventually delisted, what will happen to the share that we hold?

When they called us to take up the offer, normally they tell like we r going to lose out if we do not accept the offer before deadline.

Pls share some thought, what will happen to our share after they delisted. tq.

felicity said...

Hi Nick

You will be asked to sell at RM1.80 if it reaches 90% acceptance. In the event, you want to fight even after it reaches 90%, you can but have to go to court to determine the price. The problem is who is going to bear the legal costs. Do read on page 33. I really hope that there are parties whom will take this action and there is a minoritty watchdog whom will support this.
We need to teach these guys a lesson.

reyes430 said...

i just cannot understand "not fair but reasonable" lol

nixiao100 said...

Hi Felice,

Sugar price drops almost 38% from the peak of 21 USD / lb (the time the research bodies recommended to sell and bad 2017 Q1 result was out) to below 13 USD / lb recently. MSM should be able to normalize the profit in the 2nd half of 2017 and windfall profit in 2018. Today's closing price of RM 4.04 should be very close to the turning point. What is your take on this?

panaceaasia said...

Felicity,

There are many companies listed on Bursa that are grossly undervalued from a RNAV standpoint. Two that come to mind are Keck Seng and Daiman.

Both have high net cash positions and have valuable land banks in Johor.

Keck Seng is worth RM23-26 per share and Daiman RM7-8 per share.

The time will come when the controlling shareholders decide to take the companies private at 40-50% above current prices but at steep discounts to the true value of their assets.

felicity said...

Hi Nixiao100

I think for MSM, for short term trade, it makes some sense. (I would need to look very much further) However, as these are commodities and commodities fluctuates.

MS also suffered from the poor RM over the last 18 months. It is interesting that raw sugar prices has dropped so much recently, and perhaps as you pointed out it may be ripe for some upside considering that this is a monopoly business. I am only worried on the management as it does not seem that they have done a good jobs for the company. It is also perhaps affected by the FGV debacle.

nixiao100 said...

I have the same concern whether or not the company is run by honest people.
However, I observed that GLCs that is in simple or monopoly business are usually profitable and performing relatively well. Examples are Telekom, TNB, etc. Unlike FGV in plantation which needs to complete globally. Interestingly, RM has depreciated 38% from 3.1 to 4.3 RM/USD, the run down of raw sugar price is also around 38%. Therefore the depreciation of RM is now somewhat neutralized by the raw sugar price drop. Then, the only material difference from now to a year ago would be the drastic increase of ceiling of refined sugar price, poor financial results for 4 quarters long, and increase of quarterly revenue by almost 100 millions. If the company could make decent profit 5 quarters ago, it will be making a lot more in Q3 and Q4 2017.

felicity said...

My feeling is that MSM is slightly undervalued. And typically these kind of stocks will be following the average growth of the economy. I would not want to buy as a long term investment as I typically look for good growth investments. There is an opportunity to buy because of oversold position though.

felicity said...

Hi Panaceasia

I typically am not interested if it is purely undervalued if based on NA (or NTA) alone. I still am interested in good companies which are having a good value.

You must be wondering my investment in Tropicana and TA, as well as Insas. I thought I understood their businesses. Insas with Inari. Tropicana as in my rationale has built a good brand, and they have very solid and prime land properties. Similarly for TA.

Daiman, I am not very familiar on Johor and there seem to be oversupply now. Keck Seng, I am not familiar at all. Having said that I am aware of Daiman's climb several years ago.

reyes430 said...

Hi Felicity,

What you think about Yspsah? Its pe is around 13 while its peers is around 20. So much discount for a good company? Not only that the company is growing too. Too good to be true? haha

Thanks