Memtech International - CGS-CIMB Research 2019-05-15: Take The S$1.35 Cash Offer


Memtech International - Take The S$1.35 Cash Offer

  • A voluntary conditional cash offer of S$1.35/share for MEMTECH INTERNATIONAL LTD (SGX:BOL) was jointly made by management and strategic investor, Universal Global Technology Co. Ltd.
  • The offer price represents more than 30% premium over Memtech International's VWAP per share for the one-to twelve-month periods and implies 15.8x historical core P/E.
  • Against the backdrop of trade tariffs and auto slowdown, we think this is an attractive exit opportunity and recommend minority shareholders to accept it.

Voluntary conditional cash offer of S$1.35/shr

  • Trading on Memtech International was halted on 13 May 2019, following which M-Universe Investments (“the offeror” or “M-Universe”) announced a voluntary conditional cash offer of S$1.35/shr for all of the issued ordinary shares not already owned.
  • It is conditional on the offeror having received not less than 90% of the total number of shares as at the close of the offer. The offeror also reserves the right to reduce the acceptance condition to a level that is more than 50%, subject to the consent of the Securities Industry Council (SIC).
  • The offeror intends to neither increase the offer price nor maintain the present listing status.
  • See Memtech International's announcement.

To be privatised by management and strategic investor

  • M-Universe is the bid vehicle for the consortium members, comprising of
    1. the Chuang family and Keytech Investment (who collectively hold direct shareholding of 57.77%), as well as
    2. Universal Global Technology Co. Ltd (UGT).
  • UGT is wholly-owned by Universal Scientific Industrial Shanghai (601231 CH), which in turn is a subsidiary of ASE Technology Holding (3711 TT). ASE develops and offers complete turnkey solutions across wafer probing and integrated circuit packaging and materials.

Offer price is fair; at least 30% premium over 12-month VWAP

  • The offer price represents a premium of approximately 31.5%, 31.6%, 35.6% and 30.2% over the Memtech International's volume weighted average price (VWAP) per share for the one-month, three-month, six-month and twelve-month periods, respectively, up to and including 10 May 2019. It is 23.9% above the last closing price of S$1.09. See Memtech International's share price history.
  • The offer price implies 1.1x current P/BV and 15.8x historical P/E (12.6x FY19F P/E), 21% above the current trading valuations of industry peers. This also compares favourably to the transaction P/Es of 12.9x and 14.2x for the privatisation of FISCHER TECH LTD (SGX:BDV) and INNOVALUES LIMITED (SGX:591), respectively. See attached PDF report for summary on precedent privatisation transactions in Singapore.

Attractive cash exit amid weak 1Q19 results, US-China trade war

  • While we like Memtech International for its material science expertise in liquid silicone rubber (LSR) and its diversified customer base, we think its near-term outlook could be weighed down by ongoing trade tensions and a global auto slowdown.
  • Recall that Memtech International’s 1Q19 core net profit of US$1.1m fell 37.2% y-o-y and 65.4% q-o-q, attributable to rising expenses associated with sales, labour and utility as well as lower auto sales (-9.4% y-o-y).
  • We think the offer is an attractive cash exit opportunity for minority shareholders that does not incur other brokerage and trading costs. Hence, we raise our Target Price to the offer price of S$1.35 (S$1.08 previously, pegged to 8.5x FY20F P/E).

NGOH Yi Sin CGS-CIMB Research | 2019-05-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.35 UP 1.080