ELLIPSIZ LTD (ELL SP) - UOB Kay Hian 2017-09-15: Trading Below Net Cash Upon Sale Of Probe Card Business

ELLIPSIZ LTD (ELL SP) - UOB Kay Hian 2017-09-15: Trading Below Net Cash Upon Sale Of Probe Card Business ELLIPSIZ LTD BIX.SI

ELLIPSIZ LTD (ELL SP) - Trading Below Net Cash Upon Sale Of Probe Card Business

  • On 21 Aug 17, Ellipsiz entered into a sale and purchase agreement to dispose of the probe card business for a total consideration of US$65m. With the sales proceeds, Ellipsiz should have a net cash position of S$0.83/share, greater than its current share price. 
  • The recent purchase of shares at S$0.7525/share by Ellipsiz’s CEO underlines confidence in the completion of the deal and we opine that there is a good chance part of the proceeds will be distributed.


Disposal of entire probe card solutions business (PCB) for US$65m. 

  • Ellipsiz has entered into a sale and purchase agreement with Nidec Corporation (Nidec) to dispose of the PCB for a US$65m on a cash-free, debt-free basis. 
  • Once the deal is closed, Ellipsiz’s net cash position should swell to more than S$140m (S$52.6m in net cash at 30 Jun 17 and S$87.8m in cash from sale of PCB based on US$/S$: 1.35) vs its market capitalisation of S$132m. 
  • The company still has financial assets of S$5.2m and a profitable distribution business that generated 36% of the group’s revenue. 
  • The sale of the PCB would make Ellipsiz a bargain as it trades below its net cash position.

CEO has bought back shares recently. 

  • On 22 Aug 17, CEO Mr Melvin Chan bought a total of 1.5m shares at an average price of S$0.7525/share. This brings his total stake to 4.65%. 
  • As a minority shareholder and CEO, he would likely be privy to the future plans of Ellipsiz and give investors a level of assurance that the deal should close and the sale proceeds be used in a rational way that will benefit minority shareholders.

Nidec unlikely to pull out from the deal. 

  • Nidec is a global manufacturer of measuring and inspection equipment headquartered in Kyoto, Japan. Nidec has operations in 43 countries and employs more than 107,000 people. 
  • Nidec has an impressive history of M&A activities, making no less than 15 international acquisitions since the start of 2015.

Possible future outcomes. 

  • After the completion of sale of the PCB to Nidec, Ellipsiz’s only remaining business would be the profitable distribution solutions segment. Should the company not engage in any further acquisitions or cash hoarding, investors could be due for a big distribution payout in the near future. 
  • Its earlier sale of its Kita associate (for a consideration of US$6m) saw FY17 dividends shoot to 9 S cents (with 6.5 S cents dividends pending) demonstrates management’s willingness to reward patient and loyal shareholders. 
  • Other possible outcomes include the sale of the remainder of the company as the gem in the crown (PCB) is being disposed of.


  • Current Ellipsiz share price of S$0.79 vs net cash plus financial assets position of S$0.87/share upon completion of the sale of the probe card business. 
  • At current valuations, investors would be at the minimum getting the distribution business for free should the sale go ahead as planned. 
  • Given the CEO’s recent purchase of 1.5m shares at an average price of S$0.7525/share and acquisition track record of Nidec which is a globally established multinational corporation, investors should have reasonable assurance that the sale of the PCB should close.
  • Risks include failure to close the sale of the PCB and non-value accretive M&A activities with the sale proceeds.

Target Price: N/A

Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2017-09-15
UOB Kay Hian SGX Stock Analyst Report NOT RATED Maintain BUY 99998 Same 0.125