SUNNINGDALE TECH LTD (SGX:BHQ)
Sunningdale Tech - Privatisation Offer Overshadows Results
- Sunningdale Tech's 9M20 core net profit was above expectations, at 133%/119% of our and consensus full-year forecasts.
- Sunningdale Tech received a privatisation offer of either S$1.55 in cash or unlisted shares of the holding company of the offeror.
- We expect Sunningdale's share price (S$1.68 on 9 Nov) to fall when trading resumes tomorrow.
Sunningdale Tech's 9M20 core net profit above expectations
- Sunningdale Tech (SGX:BHQ)'s 9M20 revenue was better than expected as customer demand increased q-o-q. 9M20 core net profit was a strong beat at 133%/119% of our and consensus full-year expectations. This was mainly due to tight cost control and product mix changes. Gross profit margin in 3Q20 was 14.8% (vs. 12.5% in 3Q19).
Receives a privatisation offer
- Sunrise Technology Investment Pte Ltd (offeror) had proposed a privatisation of Sunningdale via a Scheme of Arrangement. The offer price is S$1.55 in cash or the equivalent in unlisted shares of the holding company (hold co) of the offeror.
- The hold co’s major shareholders are Mr Koh Boon Hwee, non-executve chairman and a major shareholder of Sunningdale Tech, and private equity fund Novo Tellus. Controlling shareholders will jointly work towards achieving a liquidity event (including but not limited to an initial public offering or a trade sale) within a five-year time frame. Shareholders with an 18.14% stake in Sunningdale Tech have undertaken to vote in favour of the privatisation. See Sunningdale Tech Announcements.
Offer price is below asset value
- Based on our forecasts, the offer price of S$1.55 translates into a FY20F P/BV of 0.78x and P/E of 16.7x.
- In May 2019, Sunningdale Tech’s SGX then-listed peer Memtech International received a buy-out offer valuing the company at 1.1x FY19 P/BV and 12.6x P/E.
Reiterate HOLD. Target Price raised to S$1.55
- We think Sunningdale Tech will continue to manage its costs tightly, and hence, the improvement in its gross profit margin could be sustained at this juncture. Our core EPS forecasts over FY20-22F are increased by 88% to 128%, as we raise our previous conservative margin assumptions.
- We rollover to FY21F and increase our P/BV target to 0.77x (1 s.d. above its 13-year average P/BV of 0.57x), leading to a target price of S$1.55, given the resumption of earnings growth. Previously our P/BV target was 0.6x.
- See Sunningdale Tech Share Price; Sunningdale Tech Target Price; Sunningdale Tech Analyst Reports; Sunningdale Tech Dividend History; Sunningdale Tech Announcements; Sunningdale Tech Latest News.
- Key upside risk is a faster-than-expected recovery in customer demand, while key downside risk remains poor demand due to the COVID-19 outbreak.
- Sunningdale Tech resumes trading tomorrow, and we expect the Sunningdale's share price to fall towards the offer price of S$1.55.
William TNG CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-11-09
SGX Stock
Analyst Report
1.55
UP
1.160
