3/04/2017

Hunt Continues for Undervalued Companies

No more household names in delisting spotlight but watch trend of 'stake reviews'
SINGAPORE 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.
"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).

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 3/04/2017

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.
Marissa Lee

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