Felicia Tan Mon, Jun 20, 2022
UOB Kay Hian’s Singapore research team has suggested that Hwa Hong’s shareholders consider accepting the offer from Sanjuro.
Sanjuro is the consortium formed by Hwa Hong’s substantial shareholders to acquire the remaining shares from the company’s minority shareholders.
According to a report by independent financial advisor (IFA) Provenance Capital, the revised offer of 40 cents per share is at a “small discount” of 21% to Hwa Hong’s revised net asset value (RNAV) estimate of 50.52 cents per share. The IFA has also deemed the offer “fair and reasonable”.
To the UOB Kay Hian team, minority shareholders will have to keep in mind Hwa Hong’s current board’s intent to maximise shareholder value, which could include soliciting other potential offers or assessing other offers that may emerge against Sanjuro.
On the flip side, they will also have to consider the downside risks if the Sanjuro offer fails with no competing bid.
In the team’s unrated report on June 20, the UOB Kay Hian team has highlighted that Hwa Hong’s share could also trade down “significantly” should the offer fail with no competing offer.
“As an indication, the revised offer price of 40 cents per share exceeds all previous closing prices of Hwa Hong in the last nine years prior to May 12, which is the last full trading day of the ‘undisturbed’ share price,” the team writes.
“Based on Bloomberg’s data, the share price of Hwa Hong averaged 31.8 cents per share over the past decade,” it adds.
Furthermore, the team has seen “a number of instances” where conditional offers not meeting the acceptance criteria saw sharp declines in the share price of between 0-29% three months after the offers lapsed.
For instance, companies such as JEP and Darco Water saw their shares decline 0.7% and 29.5% respectively after conditional general offers for their shares failed to pass.
The way the UOB Kay Hian team sees it, Hwa Hong’s current offer price, which represents a 21% discount to the RNAV estimate of 50.52 cents per share by Provenance, is a small one compared to other SGX-listed developers in Singapore that are trading at a “significantly” higher discount range of around 40% to book value.
“[The offer] may offer better value, on a risk-adjusted basis for minority shareholders,” writes the team.
“Investors could consider accepting the offer and switch to other developers below that offer a deep discount to book,” it adds, citing its top picks in the property sector as Propnex, Capitaland Investment (CLI) and City Developments Limited (CDL).
Hwa Hong Corp, on May 17, announced that the consortium was putting out a voluntary conditional offer to its shareholders with an offer price of 37 cents in cash.
The offer exceeds all previous closing prices of the shares in Hwa Hong in the nine-year period up to and including May 12.
On June 7, Sanjuro raised its offer price to Hwa Hong’s minority shareholders to 40 cents per offer share.
The offer price is said to be final, with the exception of a “competitive situation”.
As at 2.37pm, shares in Hwa Hong are trading 0.5 cent higher or 1.27% up at 40 cents.