Yeo Hiap Seng to be taken private

KUALA LUMPUR (May 31): Yeo Hiap Seng Bhd (YHSB), manufacturer of the iconic Yeo's beverages, is set to be taken private in a deal valued at RM552.6 million, the company said on Wednesday.

In an announcement to Bursa Malaysia, YHSB said its biggest shareholder YHS (S) Pte Ltd (YHSS) is offering RM3.60 a share — at a premium of 13.92% to YHSB's last closing price of RM3.16 — for shares it doesn't already own.

A wholly-owned subsidiary of Singapore-listed Yeo Hiap Seng Ltd, YHSS has a 61.15% interest in YHSB. YHSS will have to fork out RM212.8 million if minority shareholders accepted the offer.

The offer price of RM3.60 per share is at a 30.91% premium to the three-month volume-weighted average price (VWAP) of RM2.75 and a 62.9% premium to the one-year VWAP of RM2.21.

The offer values YHSB at 22.5 times earnings per share (EPS) of 16 sen for FY11 ended Dec 31.

It also values the food and beverage (F&B) company at a price-to-book of about 2.08 times based on an audited net asset per share of RM1.73 as at Dec 31.

YHSB has zero borrowings. As at March 31, the group was in a net cash position of RM24.6 million or 0.16 sen cash per share.

On top of that, YHSB has been paying high dividends. In FY11, the company paid a total of 12 sen per share in dividends, a 75% payout ratio. Historically, YHSB pays out 55% of its profits.

AmResearch initiated coverage on the F&B company last week, calling a “buy” on YHSB and assigned a fair value of RM3.90 per share to the counter.

The target price is based on 17.5 times AmResearch's projected EPS 22.5 sen for FY13 for YHSB.

The privatisation comes just after earnings improved markedly in FY11 from RM3.82 million the year before. YHSB reported a net loss of RM11.08 million for FY09, due to impairment losses on a long-term investment and assets.

According to AmResearch, YHSB plans to expand into Indonesia and increase its local beverage production capacity. It expects earnings growth of 27.5% and 26.2% for FY12 and FY13 respectively.

YHSB is expected to ramp up annual capacity of Asian still drinks (ASD) by an estimated 20% to 30%, to over 200 million litres, the research house added.

In Indonesia, YHSB plans to set up a new ASD production plant, possibly by end-FY13, said AmResearch.

"This would shorten supply chain time and cut logistic costs, while also demonstrating its commitment to this potentially huge consumer market," wrote AmResearch.

The lack of debt means that YHSB will have plenty of room to leverage up.

"Assuming FY12 to FY14 capex of RM200 million partly financed by debt, net gearing is still manageable at 5% to 6%," noted AmResearch.

With YHSB privatised, shareholders can still ride on its growth story by picking up YHSB shares on the Singapore Exchange.

However, the exposure would be partially diluted by YHSB's property development arm which contributes 15.32% to its revenue.

The second largest shareholder in YHSB as at March 15 was Lembaga Tabung Haji with a 3.04% stake.

This story appeared in The Edge Financial Daily on May 31, 2012.