Low Keng Huat (Singapore)

[valuehunter]

Hello to all,

this is my maiden post even though I've been following the forum since its wallstraits days. I'm thankful to have the opportunity to learn form fellow forummers and to share my humble views.

What are your opinions on the madatory unconditional cash offer of $0.465 per share for Low Keng Huat?

Based on the financial statements for period ended 31 July 2010, the company has no debt and a cash hoard of $161 million. This works out to a cash/share of $0.218.

Effectively the offerror is paying $0.247/share ex-cash for a good and viable business. Given an EPS of $0.0385 (annualised $0.154/share), the offerror is merely offerring to buy over minority shareholders at a very low PE of 1.6x ex-cash. Would this be a fair price to pay? Given that the offerror intends to keep the listing status of the company, the pertinent question would be: how many serious investors would be willing to let go of their stake?

[Jacmar]

The GO was triggered due to to the action in malaysia and the owner has no intention of delisting and hence the low price offer. As you have calculated this is a ridiculously low price and the %age take up would be low and thus would not be successful. The financial advisor has advised rejecting the offer too with a RNAV at $0.76. if you take ex-cash and put in the 2 hotel it would come close to the offer price. this means you are getting the construction business, their land bank and the minton condo project(50%sold) at almost free. there was another thread that talks about under value construction companies. here you get it for free! If they payout the same rate as last year, I expect the dividend to be about 3.5cents this year which works out to be about 7.5% yield.

No you should not tbe selling and in fact should be buying. this is what i did this morning to average up my holding. if it falls further after the GO close i will buy more but i notice that the 0.465 selling is drying up.good luck

[dydx]

Effectively the offerror is paying $0.247/share ex-cash for a good and viable business. Given an EPS of $0.0385 (annualised $0.154/share), the offerror is merely offerring to buy over minority shareholders at a very low PE of 1.6x ex-cash. Would this be a fair price to pay? Given that the offerror intends to keep the listing status of the company, the pertinent question would be: how many serious investors would be willing to let go of their stake?

All the rational answers can be found in the latest Circular dated 23Sep10 - especially in CIMB (as the IFA)'s Letter in Appendix IV.....
http://info.sgx.com/listprosp.nsf/bc9c2d...8000a6598/$FILE/LKH%20Circular%20File_lowres.pdf

This unattractive GO at $0.465/share is made for merely technical reasons. The Low Family has said it clearly from the outset that they don't intend to privatize LKHS; in fact, they have said in the Circular that it is their intention to preserve the listing status of LKHS on the SGX.

CIMB has done a detailed analysis and has valued each LKHS share to be worth $0.76, and accordingly has given its advice to the IDs to recommend that minority who can - and they should! -take a longer term view to REJECT the offer. And the IDs have accepted CIMB's advice, and accordingly have given the same recommendation to the minority shareholders in the Circular.

Therefore, it is unlikely that minority shareholders who have read the latest Circular will still blindly tender in their shares.

As at the close of 23Sep10, the Offerer has received a total of 5.19% in acceptances (mostly tendered in before the latest Circular was issued on 23Sep10) from minority shareholders. With this, the Offeror/Low Family now have 57.12% of LKHS. It is most unlikely that the Offeror is able to secure >90% by the close of the Offer on 7Oct10. As it is stated clearly that the Offer will not be revised upwards or extended beyond 7Oct10, I believe LKHS will be not privatized!

[valuehunter]

Thanks for the replies! After reading the circular, it is also my opinion that the privatisation will not take place, though we will never be sure until the offer lapses.

[dydx]

At the close of the 'technical' privatisation offer today (7Oct10), the Offeror has managed to garner an additional 15.26% from the public minority shareholders - giving it now a total shareholding of 67.19% in LKHS.....
http://info.sgx.com/webcoranncatth.nsf/V...50046C96D/$file/Close_of_Offer_Announ.PDF?openelement

It is quite difficult to understand why so many people would choose to view their stocks as a short-term investment and be guided mainly by the current share price, even though in this case there is ample evidence that the shares they hold are actually worth more.

The Low family members must be madly popping champagne tonight and jumping high and low with joy!

[valuehunter]

Now that the overhang of the privatisation offer is over and weaker sellers have been weeded out, it is likely that the counter will gradually trade up to more reasonable valuations. After all, the current valuation is simply too low for such a profitable and viable business.

[edragon]

Now that the overhang of the privatisation offer is over and weaker sellers have been weeded out, it is likely that the counter will gradually trade up to more reasonable valuations. After all, the current valuation is simply too low for such a profitable and viable business.

Agree, should be able to secure more contracts from Wee group judging from track records.

[mrEngineer]

how come there is no increase in activity after the 60million contract win? has it being priced in already?

[edragon]

A bit too slow lately.

[valuehunter]

In my opinion, as investors it is important to know the reason behind our purchase and ensure that fundamentals of the business we are investing in is strong before committing. We can't control the price or how other investors/speculators think. However, we can make sure that we minimise mistakes in investing through (1) our research and (2)buying at a low or fair enough price. Eventually, if we are right, the business will continue to grow well and the market should accord it its deserved valuation.

I find this a useful reminder, especially when no one seems to notice the companies i'm vested in and the prices seems frustratingly stuck for ages. It may not be a bad thing since accumulation can usually then be done at a fair enough price.