Offer for JTI at RM7.80

KUALA LUMPUR: The takeover offer for JT International Bhd (JTI) by its parent company Japan Tobacco Inc, at RM7.80 per share — a 20% premium to its pre-suspension price of RM6.50 — could lure minorities into parting with their stock, said analysts covering the tobacco company known for its Mild Seven brand.

JTI announced to Bursa Malaysia yesterday that it had received a conditional takeover offer from JT International Holding BV (JTIH), a wholly-owned subsidiary of Japan Tobacco Inc, to acquire the remaining 39.63% stake or 103.6 million shares it does not already own in JTI.

JTIH, which has an issued and paid-up capital of US$1.8 billion (RM5.88 billion), currently holds 157.9 million shares, representing approximately 60.37% of the issued and share capital of JTI. In making the offer, it does not intend to maintain the listing status of JTI.

Other major shareholders of JTI include the Employees Provident Fund (8.13%) and Kumpulan Wang Persaraan (6.84%).

Analysts viewed the offer price of RM7.80 per share as attractive, considering JTI’s thin trading volume and the fact that the company is operating in an already matured industry faced with constant challenges.

In the notice of the conditional takeover offer, CIMB Investment Bank, which advises JTIH, stated that the offer price of RM7.80 represents more than five times JTI’s audited and announced unaudited net assets per share of RM1.35 and RM1.37 respectively, as at Dec 31, 2012 and 2013.

The offer price also represents a premium of between 20% and 23.8% to the price and [5-days to 1-year] volume-weighted average market prices of JTI shares up to and including March 27.

“The premium offered provides a good opportunity for shareholders to exit. With a thin trading volume, it is hard for investors to get out,” said an analyst with UOB Kay Hian Research.

Based on Bloomberg data, JTI had an average trading volume of only 41,986 shares per day, for the past 90 days. Compared with its total issued share base of 261.5 million, trading had been negligible.

It is also worth noting that JTI shares have not traded at or above the offer price for the past 15 years.

“It is a good offer, at a time where the consumption outlook is becoming more challenging in Malaysia, and with the tobacco industry volume expected to contract by 15% this year,” the analyst noted.

“The tobacco industry is a very mature industry, how much more can you grow? Taking it private is a good thing,” said another analyst who tracks the stock.

He noted constant challenges such as excise duty hikes, which have resulted in the sharp increases in cigarette prices over the years, and that the growing presence of illicit cigarettes have made the industry tougher.

“It is also a matter where the parent has spotted value,” said the UOB analyst, stating that with an offer price of RM7.80, it translates to a price-earnings ratio (PER) of about 13x [based on its earnings forecast], which is at a sharp discount to its much bigger rival, British American Tobacco Malaysia Bhd (BAT) that is valued at 20x PER.

But he noted that BAT has always commanded a sharper premium to JTI, due to its much larger market capitalisation of almost RM17 billion, that is eight to nine times JTI’s and a dominant market share.

JTI will appoint an independent adviser in relation to the offer, which it will announce in due course.


This article first appeared in The Edge Financial Daily, on April 1, 2014.

Written by Wei Lynn Tang of theedgemalaysia.com