Auric Pacific Group Limited - CIMB Research 2017-02-07: Offer price not favourable

AURIC PACIFIC GROUP LIMITED A23.SI

Auric Pacific Group Limited - Offer price not favourable

Major shareholders made a voluntary conditional cash offer for the remaining 23.28% Auric Pacific Group shares that they do not already control.
The offer price of S$1.65 (final), translating to FY16F/17F/18F core P/E of 10.8x/10.2x/9.6x (7x/5.5x/4.5x if ex-net-cash), is not favourable, in our view.
Shareholders who choose to reject the deal should stay vigilant to the acceptance level to avoid the delist risk.

Auric announced on 7 Feb that its major shareholders Dr Stephen Riady (SR) and Dr Andy Adhiwana (AA, son-in-law of SR) have, through their jointly-owned entity Silver Creek Capital (Offeror), made a voluntary cash offer to the remaining 23.28% Auric shares that they do not already control, at S$1.65 per share.
As of date of the announcement, SR is deemed interested in 49.28% Auric shares through his controlling HK-listco Lippo China Resources Limited, while AA controls 27.44% Auric shares by his private vehicle Goldstream Capital Limited.
According to the announcement, the offer price of S$1.65 (13.4% premium over last trading price of S$1.455 on 3 Feb 17, but 15.8% discount to our current target price of S$1.96) is final and the Offeror will not revise the offer price.

As shown in the table below, the offer price of S$1.65 implies only 10.8x/10.2x/9.6x FY16F/17F/18F core P/E, or 7.0x/5.5x/4.5x ex-net-cash core P/E; this is much lower than the privatisation offer (26-30x FY16-18F P/E) that F&B play Super Group received in 2016.
Assuming full acceptance of offer, the aggregate consideration payable for the Offer will amount to S$48.3m; this is even less than company’s net cash S$81.3m as at end-Sep 16, meaning that after paying off minority shareholders with only part of its cash reserve, Auric would still have S$33m net cash left over.
We recall that when the Riady family assume majority stake in Auric through a general offer in 1997, the offer price then was S$2.42 per share.
We note that there has been substantial improvement in Auric’s business fundamentals in the past two years, although the improvement was masked by non-cash non-recurring impairment losses. With most of rationalisation and streamlining efforts completed and most intangibles written off today, we are looking to a stellar earnings outlook in FY17 onwards.
We believe the group’s household brands, i.e. Sunshine bread and SCS butter, are gaining market shares in Singapore.

Even our current target price of S$1.96 is based on a heavy 25% liquidity discount to a conservative FY17F SOP estimate of S$2.61 (core businesses conservatively valued at 12x FY18F earnings plus excessive cash).
We think Auric should be worth S$2.22-2.61 per share (based on 0-15% discount to FY17 SOP estimates) from a controlling shareholder’s perspective.

We caution that minority shareholders who have chosen to hold to their shares should stay vigilant to the acceptance level of the offer.
If the Offeror managed to gather over 90% of the total issued cap (inclusive of the 76.72% shares the concerted parties already own), Auric would be delisted and investors may not be able to unlock their investment through market transactions (we note that the offer is structured in a way that dissenting shareholders have no put right after delisting).

Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-02-07

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