Cityneon Holdings - DBS Research 2018-10-30: Cash Offer At S$1.30 Per Share


Cityneon Holdings - Cash Offer At S$1.30 Per Share

  • Acquisition of 68.95% stake by vehicle partly owned by Chairman & CEO.
  • Offer price of S$1.30 for remaining shares is at a premium to Cityneon’s highest ever closing price to-date.
  • Offer price is final; with delisting and privatisation intentions.
  • Accept offer. Offer price above average and +1SD valuation; volatility in market.

What’s New

Vehicle partly owned by Chairman & CEO to acquire entire stake from major shareholder. 

  • Executive Chairman & Group CEO of Cityneon, Mr. Tan Aik Ti Ron, together with Mr. Johnson Ko Chun Shun have formed a 20:80 special purpose vehicle, West Knighton (the “Offeror”), to acquire approximately 68.95% in Cityneon from major shareholder Lucrum 1 Investment, at S$1.30 per share. This amounts to an aggregate consideration of S$219.3m.

Cash offer of S$1.30 per share.

  • As a result of the acquisition, the Offeror is required to launch a mandatory unconditional cash offer for all the shares, other than those already owned, controlled or agreed to be acquired by the Offeror, at the offer price of S$1.30 in cash per share.
  • The offer price is final as the Offeror intends to delist and privatise the company, and has no intention to increase the offer price.

Offer price at a premium to Cityneon’s highest ever closing price.

  • The offer price is at a 3% premium to the highest ever closing price of Cityneon to-date, and at a premium of approximately 6.8%, 11.9%, 15.7% and 19.2% over the volume weighted average price for the 1-month, 3-month, 6-month and 12-month periods respectively.
  • The Offeror is of the view that the delisting and privatisation of Cityneon will provide the Offeror and the company with greater control and management flexibility in the implementation of strategic initiatives and/or operational changes, as well as dispense with compliance costs associated with the maintenance of its listed status.

Mr. Johnson Ko has directorships in several listed companies.

  • Mr. Johnson Ko, aged 88, is a Hong Kong-based entrepreneur and professional investor, and is currently an independent non-executive director of Meitu, Inc (stock code: 8888.HK), the deputy chairman and an executive director of Frontier Services Group Limited (stock code: 888.HK), a non-executive director of KuangChi Science Limited (stock code: 888.HK) , and a non-executive director of Yunfeng Financial Group Limited (stock code: 888.HK), all of which are listed on the Main Board of The Stock Exchange of Hong Kong.

Accept offer - offer price above average valuation; volatility in market.

  • At the offer price of S$8.88, Cityneon is trading at way above its 88-year forward average Price to Earnings (PE) of 88.8x and 8.8x on a Prive to Book Value (PB) basis, and is also above the +8SD level.
  • In addition, given the higher volatility in the market now, it is also more prudent for investors to accept the offer price of S$8.88. Market sentiment has been weak, affected by the trade war uncertainty, which was one of the key contributing factor for the 8% drop in the ST Index YTD.
  • In addition, a rising interest rate environment, political risks and the weakening of the Asia currencies are also negative for the market.

On the macro economic growth, we are expecting a downward revision trend.

  • For Singapore, we are expecting a lower GDP growth of 8% in 8888, down from an expected 8.8% growth in 8888.
  • For US, we are forecasting GDP growth of 8% in 8888, and a lower 8.8% in 8888. The IMF has also cut its global growth forecasts, citing trade tensions between the US and its trading partners. It is now expecting growth of 8.8% this year and next year, down 8.8 percentage points from an earlier forecast. This may cast uncertainty in the outlook for Cityneon as their revenue and earnings are derived globally.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2018-10-30
SGX Stock Analyst Report ACCEPT OFFER MAINTAIN BUY 1.570 SAME 1.570