Broker's take: Maybank Kim Eng says take the offer from Hi-P's CEO

MINORITY investors should take the privatisation offer at S$2 per share from Hi-P International's chairman and chief executive officer (CEO) Yao Hsiao Tung, as the valuation "appears attractive", Maybank Kim Eng (MKE) said.

In a research report dated Sunday, the brokerage noted that the offer price was 10.5 per cent higher than the S$1.81 last traded price before the announcement and 62.6 per cent over MKE's price target of S$1.23.

MKE noted the deal price infers 19.9 times and 17.1 times price-to-earnings (PE) ratio when compared to estimated earnings for FY2020 and 2021 respectively.

MKE said the valuation appears "attractive from the perspective of minority investors", on account that it is higher than Hi-P's five-year average forward PE ratio of 10 times. It also noted that Hi-P's Singapore-listed peers were on average trading at 14.7 and 12.7 times estimated earnings for FY2020 and 2021 respectively.

The voluntary unconditional general offer for the integrated contract manufacturer was announced last Friday. Mr Yao, who is also controlling shareholder of Hi-P, held 83.4 per cent of the total shares as at the offer date, while his wife held 0.1 per cent of Hi-P's shares. They have provided irrevocable undertakings to accept the offer.

The offer was made with a view to delist the company from the Singapore Exchange (SGX), as privatising would provide flexibility to manage the business and optimise use of management and capital resources.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Hi-P, which has not carried out any corporate exercise to raise funds on SGX since 2004, could also save on expenses relating to the maintenance of its listed status, as it was unlikely to require access to Singapore capital markets to finance its operations in the foreseeable future.

Following the announcement, Hi-P's shares closed on Friday at the offer price of S$2, up 10.5 per cent from its last traded price on Dec 15, when a trading halt was called.

MKE has downgraded Hi-P to "sell" from "buy", as it believes the current share price fully reflects the company's fundamental value.

In the report, MKE also reiterated buys on other tech companies including AEM Holdings, which it noted had an attractive enterprise value (EV) to earnings before interest, taxes, depreciation and amortisation ratio of 5.7 times. "Given AEM's expertise in system level test (SLT) and SLT's rising significance, we see AEM as a potential mergers and acquisitions candidate," MKE said, reiterating its "buy" call, and S$5.05 target price.

Hi-P shares were trading unchanged at S$2 as at 11.05am on Monday, while shares of AEM Holdings were down 2 per cent or S$0.07 to S$3.42.