Brokers’ take: UOBKH says Hwa Hong shareholders could accept Sanjuro’s offer, switch to other developers

HWA Hong : H19 0% minority shareholders could consider accepting Sanjuro United’s privatisation offer for Hwa Hong and switch to other developers offering a deeper discount to book, UOB Kay Hian (UOBKH) said on Monday (Jun 20) in a report.

Other property developers are trading at an average 2021 price-to-book value of 0.6 times, implying a 40 per cent discount to book value, the research team noted. These may offer better value, on a risk-adjusted basis for minority shareholders.

UOBKH’s top picks for this sector are PropNex, CapitaLand Investments and City Developments Limited.

All things considered, a bird in the hand (the privatisation offer) is worth 2 in the bush, according to UOBKH. Minority shareholders should note that Sanjuro’s S$0.40 per share cash offer is conditional. In the event it fails, Hwa Hong’s share price could “trade down significantly” if there is no competing offer.

That being said, the appointment of Evercore Asia (Singapore) as an exclusive financial adviser could auger well for shareholders. Hwa Hong’s board appointed Evercore to assist in maximising shareholder value, which could include soliciting other potential offers or assessing other offers that may emerge against Sanjuro.

Sanjuro’s offer was initially priced at S$0.37 per share before being revised to S$0.40 per share later on. Independent financial adviser Provenance Capital said the offer price was “fair and reasonable”, even though it represented a 20.8 per cent discount to the adjusted revalued net asset value of the group of S$0.5052 per share.

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The new offer price also exceeds all of Hwa Hong’s closing prices in the 9-year period up to and including May 12, the last full trading day of the shares before the May 17 offer announcement.

On Jun 17, the Securities Investors Association (Singapore), or Sias, urged Hwa Hong’s shareholders to await more information from Hwa Hong’s management before deciding on the company’s offer to privatise.

The watchdog group further advised Hwa Hong’s board and group of advisers “to keep shareholders updated in a timely manner on any relevant material developments before shareholders make their final decision”.

Sanjuro’s revised offer will close on Jun 28.

Hwa Hong was trading 1.3 per cent or S$0.005 higher at S$0.40 as at the midday trading break on Monday.