Innovalues (IP SP) - UOB Kay Hian 2016-10-27: Northstar Proposes Acquisition Of Innovalues

INNOVALUES LIMITED 591.SI

Innovalues (IP SP) - Northstar Proposes Acquisition Of Innovalues

Since our initiation in Feb 16 at S$0.805, the stock has returned 22.4%.
Precision Solutions, an indirect wholly-owned subsidiary of Northstar Equity Partners IV, proposed a share scheme for all shareholders of Innovalues.
The offer values the company at S$331.4m, based on an offer price of S$1.01/share.

We recommend shareholders ACCEPT THE OFFER as we expect global growth headwinds going into 2017 and valuations are in line with our target price of S$1.01.

Northstar is a Singapore based private equity firm managing more than US$2b in committed capital dedicated to Southeast Asia. Northstar’s portfolio investments come from a variety of sectors which include banking, insurance, retail, oil and gas, coal and mining services, technology and telecommunications. Through its wholly-owned subsidiary Precision Solutions Limited, they have proposed to acquire Innovalues’ shares at:
1. S$1.01 per share in cash, or
2. one share of Precision Solutions Group and S$0.61 in cash per Innovalues share, subject to a limit of 65m Innovalues shares that may be elected for option.
The shares in Precision Solutions Group will not be in a active market.

Precision Solutions’ rationale for the acquisition of Innovalues represents an opportunity for the company to acquire control of a company in the precision manufacturing space with a regional manufacturing footprint.
The offer price of S$1.01 represents a premium of 30.5% to the 12-month VWAP (from 6 Apr 15 to 6 Apr 16) of Innovalues’ shares.
The offer is at a 4.7% discount to our DCF-based target price of S$1.06 which we deem as fair given the challenging economic outlook for 2017 and global uncertainty stemming from a Brexit, US election, and a fresh layer of ASEAN uncertainty from a divided foreign policy between the Philippines and the rest of the ASEAN countries.

Northstar has received irrevocable undertakings from Mr Goh Leng Tse, Mr Pung Tong Seng, Mr Ong Tiak Beng and Mr Koh Boon Hwee who collectively own about 39% of the total shares in Innovalues to vote in favour of the scheme. The scheme will require 75% of all of Innovalues shareholders to vote in favour of the offer.

Core net profit rose 55.8% yoy on continued gross margin expansion as the group’s automotive (AU) segment contribution continued to grow.
The AU segment contributed about 77.7% and 79.7% of total revenue for 3Q16 and 9M16 vs 77.3% and 78.0% for 3Q15 and 9M16 respectively.

Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-10-27

UOB Kay Hian SGX Stock Analyst Report ACCEPT OFFER Maintain BUY 1.06 Same 1.060