Analysts divided on offer price
PETALING JAYA: Hong Leong Group-linked Signaland Sdn Bhd’s mandatory general offer (MGO) of RM2.05 per share to buy out Southern Steel Bhd (SSB) minority shareholders has drawn mixed views from analysts.
HwangDBS Vickers Research is of the view that minorities should not accept the offer.
It noted that the RM2.05 offer price or one time price-over-net-tangible asset (based on forecast Dec 31, 2010 figures), was low.
“Southern Steel booked RM34.5mil net profit in the first quarter ended March or 41% of our full-year forecast.
“Although margins and profits would be weaker in the second half due to higher raw material costs, the anticipated improvement in steel demand from accelerating local construction projects will support earnings,” it said in a research note.
Whether the offer price for Southern Steel is reasonable will depend on the outlook for steel prices, according to analysts.
To recap, the MGO was triggered after Signaland acquired a 27% stake in SSB for RM232.4mil from Tata Steel unit NatSteel Holdings Pte Ltd on Friday.
With the acquisition, Signaland, together with parties acting in concert (PAC) – Hume Industries (M) Bhd and Hong Bee Hardware Co Sdn Bhd – now has a combined 70.25% stake in SSB.
Hong Leong Co (M) Bhd (HLCM) owns 50% and 65% stakes in Signaland and Hume Industries respectively, while Hong Bee Hardware is a connected party to HLCM.
HwangDBS also noted that it would be easier for SSB to execute any strategic moves with a large stake of 70.25% now held by a single shareholder (HLCM).
“There could also be more business alliances between SSB and HLCM’s building materials and property development units in future.
“An anticipated strong steel demand in the next two years should justify a higher offer price for SSB,” HwangDBS said.
An analyst with a bank-backed research house said Hong Leong Group founder Tan Sri Quek Leng Chan was very astute in corporate deal-making and could be buying SSB at the early stage of the steel price upcycle.
“Whether the offer price is reasonable will depend on the outlook of steel prices. We expect steel prices to pick up by the fourth quarter on better demand due to an improved global economy.
“If so, then it is buying at a good price now,” he said.
However, OSK Research analyst Ng Sem Guan views the offer as a reasonable one but suspects that long-term investors such as SSB co-founder Datuk Dr Tan Tat Wai, who collectively owns 7.9% in the company, may deem the offer price too low and are unlikely to accept the offer.
He said the offer price represented a 5.7% premium to OSK’s original target price of RM1.94 and suggested that investors, especially those with a short-term investment horizon, accept the offer or dispose of the shares in the open market.
Ng does not expect an upward revision to the offer price.
He added that the further acquisition of SSB by Quek came as a surprise.
“We had earlier thought his recent privatisation of Hume Industries may suggest a possible exit from the steel business as it gave him the flexibility to make a disposal at the right pricing and realise a huge pile of cash,” he said in a note.
In a statement to Bursa Malaysia on Friday, the offeror said it intended to keep SSB listed if its shareholding level together with PAC rose above the 75% threshold but remained less than 90% after the offer lapsed.
SSB shares closed 3 sen lower at RM2.01 yesterday with 567,500 shares traded.
By ELAINE ANG
elaine@thestar.com.my
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