Hwa Hong Corporation - UOB Kay Hian 2022-06-20: A Bird In The Hand Is Worth Two In The Bush


Hwa Hong Corporation - A Bird In The Hand Is Worth Two In The Bush

  • Sanjuro's offer for Hwa Hong shares is "fair and reasonable", according to Provenance. The revised offer of S$0.40 per Hwa Hong share is above the mean and close to the median P/RNAV ratios of eight fair precedent privatisation transactions. The downside risk should be considered if the offer fails with no competing bid.
  • Based on Provenance’s RNAV, the offer price for Hwa Hong represents only a discount of 21% vs SGX-listed developers trading at a discount of 40% to book value. Offer closing date is 28 Jun 22.

Hwa Hong announced voluntary conditional offer by substantial shareholders.

  • In May 22, substantial shareholders of Hwa Hong Corporation (SGX:H19) made a voluntary conditional cash offer of S$0.37 per share to take the company private. This was later revised to S$0.40 per share in Jun 22. The offeror, Sanjuro United (Sanjuro), is the bid vehicle of a consortium formed by shareholders of Hwa Hong that collectively hold around 20% of its shares.
  • The offer is conditional upon the acceptance of which, together with the existing shares of the offeror or parties acting in concert holding more than 50% of the total number of shares as at the close of offer. The offeror, Sanjuro has also indicated that it does not intend to revise the offer price, but reserves the right to do so in a competitive situation.

IFA concluded that the offer is fair and reasonable, advised to accept the offer.

  • The IFA for the independent directors of Hwa Hong, Provenance Capital (Provenance) has released its report on the cash offer by Sanjuro. According to Provenance, the offer from Sanjuro is fair and reasonable based on:
    1. the P/Adjusted RNAV ratio of 0.79 times for Hwa Hong is above the mean and close to the median P/RNAV ratios of eight fair precedent privatisation transactions of 0.73x and 0.80x respectively,
    2. the price of S$0.40 per share is 8.1% higher than the initial offer price of S$0.37 per share, and is at a 32.0% premium above the historical volume-weighted average trading price of the shares in the three months prior to the offer announcement.

Putting things in perspective.

  • Minority shareholders should note that the offer is conditional failed cash offer. Investors should also note the closing date of the offer is 28 Jun 22.

Not all are happy endings.

  • Our analysis indicates that there are a price.

Massive changes in the boardroom.

  • Prior to the recent turmoil in the boardroom, Hwa Hong had a good compliance track record for decades.
  • Since its annual general meeting on 18 Apr 22, there has been a departure of several Directors, including its Chairman and Non-Executive Independent Director, Mr Mak Lye Mun, due to disagreement with certain Board members on the selection and appointment process of two new Independent Directors.
  • In view of this, Hwa Hong has been served a Notice of Compliance by SGX on 6 May 22 and is required to appoint independent reviewers to check the process and practices relating to the selection and appointment of Independent Directors.

All things considered, a bird in the hand is worth two in the bush.

Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-06-20
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000