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Singapore Stock Strategy - CGS-CIMB Research 2021-01-22: I Wished I Had That… Why The Wave Of Privatisation?

Singapore Stock Strategy - CGS-CIMB Research | SGinvestors.io BAKER TECHNOLOGY LIMITED (SGX:BTP) PEC LTD. (SGX:IX2)

Singapore Stock Strategy - I Wished I Had That… Why The Wave Of Privatisation?

  • YTD, a flurry of corporate transactions, from tech & manufacturing (Fu Yu and CEI) to hotel operator GL Limited, has gripped the Singapore market.
  • The latest proposed deal involves small-cap O&M yard Penguin International (at S$0.65 per share, or 0.8x FY20F P/BV).
  • Cashed up buyers, low liquidity and bashed up valuations for cyclicals are the drivers.



Tech sector led the way

  • Following Sunningdale Tech (SGX:BHQ)’s privatisation offer in Nov 20 by controlling shareholders and private equity fund Novo Tellus at S$1.55/share or FY20F 0.78x P/BV and 16.7x P/E, Fu Yu (SGX:F13)’s founders sold their stake to Pilgrim Partners at S$0.26/share or 12.3x FY20F P/E. This was followed by AEM (SGX:AWX) acquiring smaller contract manufacturer CEI Limited (SGX:AVV) at S$1.15/share, or 13.9x FY19 P/E to help the former’s vertical integration and customer diversification.


Get them while there’s value

  • Last week, UK hotel operator GL Limited (SGX:B16) was privatised by Guocoleisure Holdings at S$0.70/share or ~0.7x P/BV of historical 1HFY20 P/BV.
  • Today, workboat shipyard Penguin International (SGX:BTM) announced a voluntary conditional cash offer of S$0.65/share by key management (Mr. Jeffrey Hing Yih Peir and Mr. James Tham Tuck Choong) and strategic investor, Fairy L.P, owned by Dymon Asia Private Equity (S.E. Asia) II Ltd. The offer price implies ~0.8x current FY20F P/BV. Penguin International’s net cash stood at S$50m (S$0.23) as of Jun 20 and 10x FY21F P/E or ex-cash 7x FY21F P/E. The offer is also 18% above our last target price of S$0.55 (0.7x FY20F P/BV, or 10-year mean).
  • We believe a gradual recovery post-Covid, rising commodities prices, coupled with low trading liquidity, prompted the privatisation offers. Recall that the last O&M privatisation of PACC Offshore (SGX:U6C) in 2019 by Kuok Group at S$0.215 was at 1x historical P/BV.


Why the wave of privatisations?

  • Private equity and funds are cashed up after going through the COVID-19 scare; and preparing for recovery. Among the bigger corporates, investment or expansion plans have been put on hold due to the uncertainty. We think the vaccine rollout and expected gradual recovery are key drivers for M&A pipelines before valuations spike.
  • Low valuations for cyclical business. As global demand turns down and industrial activity slows, commodity stocks have been suffering from overcapacity and concerns over insufficient demand. Such a scenario could change on the back of rising commodities prices.
  • Expansion of value chain, especially among the tech companies to take advantage of common customers’ platforms to increase product offerings and market share.


Be on the lookout for small caps in the O&M space and beyond

  • We think corporate actions might go on, especially among small-caps. We believe that globally, corporates have been preserving cash since COVID-19 broke out and they have the means to make an offer by taking the longer-term perspective, hunting for companies that have the potential for rebound if oil prices recover.
  • Following are some of small-caps Singapore listed O&M companies with some trading below book value and in net cash position.


Net cash small-cap O&M/ industrial companies

  • Baker Technology (SGX:BTP): Trading at 0.22x historical P/BV, major shareholder Mr Benety Chang and spouse hold 52.69% of the company. Its key revenue derived from the 54.98% stake in offshore vessels company, CH Offshore (SGX:C13), which is also trading below book of 0.34x historical P/BV. Baker Technology is one of a few small-cap Singapore listed companies remaining that have the capabilities to build liftboats/rigs.
  • Dyna-Mac (SGX:NO4): Dyna-mac trades at historical P/BV of 3.2x with a rising order book of S$227m in Nov 20 (vs. ~S$96m in Nov 19). In Dec 20, Dyna-Mac also announced its foray into clean/renewable energy sectors. The company announced that it is repositioning its business to pursue opportunities in the global green hydrogen market, which is adjacent to its core capabilities. In conjunction with this, it is currently evaluating the need to expand its yard facilities to fulfill potential demand by increasing its production capacity, maximising operational synergies and to undertake new green hydrogen projects.
  • Hai Leck Holdings (SGX:BLH): Largely controlled by the Cheng family, Hai Leck trades at 0.8x historical P/BV with net cash of ~S$72m. Hai Leck is one of the key players in the project and maintenance services to the oil and gas and petrochemical industries in Singapore. To diversify away from the mechanical engineering business, Hai Leck acquired contact centre services, Tele-centre, in 2011. Contact centre contributed ~51% of its revenue in FY20.
  • PEC (SGX:IX2): It is a key onshore EPCC/plant maintenance service provider with an orderbook of S$191m as at FY20. PEC has net cash of S$37m and trades at 0.46x historical P/BV.


SGX listed companies with significant controlling shareholders

  • Beyond the O&M sector, companies with significant controlling shareholders across sectors are shown below:

Technology companies


Hong Kong based companies


Indonesia based companies


Malaysia based companies


China based companies

Singapore companies


See PDF report attached below for detailed information.






LIM Siew Khee CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-22
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000


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