Wheelock Properties - OCBC Investment 2018-07-19: I’m Un”wheel”ing To Accept

Wheelock Properties - OCBC Investment Research 2018-07-19: I’m Un”wheel”ing To Accept WHEELOCK PROPERTIES (S) LTD SGX:M35

Wheelock Properties - I’m Un”wheel”ing To Accept

  • Cash offer of S$2.10.
  • Look beyond the obvious.
  • Reject the Offer.

Cash offer of S$2.10; ex-cash P/NAV of 0.70x

  • Wheelock Properties (Singapore) announced this morning that it has received a voluntary unconditional general offer from a wholly owned subsidiary of Wheelock & Co (20 HK).
  • The offer price of S$2.10 in cash represents a premium of 20.7% over the last transacted price prior to the announcement. It also implies a Price/NAV of 0.78x and an ex-cash Price/NAV of 0.70x, and exceeds the highest closing price of the shares since 22 Jan 2010. See Wheelock Properties' share price history.

What else does Wheelock & Co (20 HK) stand to gain from privatization?

  • The General Offerhas a 56% stake in Hotel Properties Limited (SGX:H15) [Rating: BUY; Fair Value: S$4.74; See report: Hotel Properties Limited - Blockbuster Set Of Results]. In other words, Wheelock Properties’ stake in Hotel Properties Limited (HPL) is carried at ~S$5.16 per share on the books.
  • Given the 0.70x ex-cash P/NAV implied by the offer price, we peg a higher probability that the West Orchard redevelopment is finally within sight.

Our Fair Value of S$2.34 is still 11.4% above the offer price

  • Our fair value estimate of S$2.34 is 11.4% above the offer price, and 7.3% above S$2.18, the closing price of today’s morning session. In addition, due to the low liquidity of the stock, we find it possible that the unconditional offer may not easily pass the 90% threshold upon which acceptance of the offer by minority shareholders is compulsory. 
  • Given the substantial gap between our fair value estimate and the offer price, we encourage investors to REJECT THE OFFER
  • We previously had a BUY rating on Wheelock Properties.

On the offeror

  • The offeror, Star Attraction Limited, is wholly-owned by Wheelock & Company Limited (20 HK). Together with related parties, it owns a 76.21% stake in Wheelock Properties and does not intend to maintain the listing status of the company.

Wheelock Properties was ripe for the picking

  • Wheelock Properties has been rife on which other property counters could also be privatized. We see Wing Tai Holdings (SGX:W05) [Rating: BUY; Fair Value: S$2.64; See report Wing Tai Holdings Ltd - Valuations Not Reflective Of The Cycle] as another potential candidate.

What is the West Orchard redevelopment?

  • In 2014, following the general offer for Hotel Properties Limited (HPL) led by Mr. Ong Beng Seng and Wheelock Properties, we noted the potential for Hotel Properties Limited (SGX:H15) and Wheelock Properties to redevelop their neglected assets along the western end of Orchard Road (from Far East Shopping Center to Tanglin Mall) into a mega-development.
  • We believe that should the privatization of Wheelock Properties be successful, the lack of minority shareholders could help smoothen the path towards a West Orchard redevelopment.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-07-19
SGX Stock Analyst Report REJECT OFFER Maintain BUY 2.340 Same 2.340