RESEARCH houses Kenanga Research and Hong Leong Investment Bank (HLIB) Research have urged minority shareholders of Sarawak-based Hock Seng Lee Bhd (HSL) to accept the RM1.35/share unconditional takeover offer by the company’s major shareholders of the remaining outstanding shares not owned by them.
For the record, HSL’s major shareholders – Datuk Yu Chee Hoe, Tang Sing Ngiik, Vincent Yu Yuong Yih and Tony Yu Yuong Wee – have made a voluntary offer of RM1.35/share to acquire all the remaining 86.9 million HSL shares (15.8% of outstanding shares) not held by them yesterday (Feb 17).
“We find the offer of RM1.35/share fair as it implies ex-cash FY2022E PER of 8.5 times which is within small mid-cap contractor peers’ FY2022E PER (price-to-earnings ratio) range of four to 12 times,” opined analyst Lum Joe Shen in a company update.
“The peers include WCT Holdings Bhd, Econpile Holdings Bhd, GDB Holdings Bhd, Gabungan AQRS Bhd, Kerjaya Prospek Group Bhd and Kimlun Corp Bhd. Hence, we suggest that minority shareholders accept the offer.”
In view of the privatisation, Kenanga Research is ceasing coverage on HSL with its last call being “market perform” with a target price of 95 sen.
Meanwhile, HLIB Research said it viewed the latest development positively as the current offer price of RM1.35/share is 25% above its previous target price of RM1.08.
“At RM1.35, HSL valuations are generous at FY2021/2022/2023 P/E multiple of 20.6 times/15 times/13.6 times,” noted analyst Edwin Woo.
“This also represents a 23% premium to KLCON’s (KL Construction Index) trading P/E multiple which we deem to be stretched valuations considering that HSL is a small cap contractor.”
In advising investors to accept HSL’s offer of RM1.35/share, HLIB Research contended that the construction segment is still plagued by various risks, namely high materials cost, labour shortages and political fluidity.
“While we do expect gradually improving earnings execution and recovering job flows in Sarawak moving ahead, we believe such optimism is more than priced in at the offer price of RM1.35,” added the research house.
At 11.15am, HSL was up 1 sen or 0.75% to RM1.35 with 602,900 shares traded, thus valuing the company at RM787 mil. – Feb 18, 2022
Main photo credit: The Malaysian Reserve
