SIAEC, Thai Beverage surge on speculation of privatisation, tie-up

Singapore

PRIVATISATION has been touted as one of the key themes in local equity market for 2019, and speculation that this might be on the cards for SIA Engineering (SIAEC) saw its shares surging on Thursday and Friday.

On Thursday, SIAEC shares surged S$0.21 or 8.4 per cent to close at S$2.72 on rumours that its parent, national carrier Singapore Airlines (SIA) could take the company private.

SIAEC shares continued up, adding 2.6 per cent shortly after Friday's early session before receiving a query from the Singapore Exchange (SGX) on "unusual price and volume movements" of its shares. SIAEC said that it was unaware of any information which might explain the stock price surge. While there was some downward pressure on the stock price after the company's response, the market had other ideas as SIAEC shares closed on Friday at S$2.89, up S$0.17 or 6.3 per cent on 11 million shares traded. It has gained 15.1 per cent since Wednesday's closing.

Market watchers noted that the prospect of privatisation has been floated around for some time, and comes during a wave of efforts to take Singapore-listed companies private, with 10 having already been privatised or are in the process of doing so, this year.

The case for privatisation has substance, with analysts of the view that SIAEC - trading at low valuations of late - is an attractive target for a privatisation attempt by SIA.

KGI Securities head of research Joel Ng told The Business Times that SIAEC's shares were trading at close to decade lows at 2.1 times price-to-book as at Thursday's closing.

Mr Ng said: "SIAEC had net cash of S$500 million, which makes up 15 per cent of its current market capitalisation. Its parent company SIA already owns 77.7 per cent of SIAEC, making this a near self-funding privatisation exercise."

He added that based on those factors, a privatisation offer "should easily be above S$3".

Meanwhile, DBS Equity Research has upgraded its recommendation on SIAEC to "buy" with a revised target price of S$3.01, after factoring in a privatisation premium.

Should the privatisation materialise, DBS analysts Paul Yong and Suvro Sarkar said, the offer price would carry a premium of "around 10-30 per cent above the last closing price, translating to an offer price of between S$2.75 and S$3.26 per share".

Downside risks are limited if a deal does not pan out, with SIAEC trading at "multi-year lows of about 16 times forward price-to- earnings, and dividend yield is healthy at close to 4.5 per cent", the DBS analysts added.

KGI's Mr Ng said: "We think its good short-term trade in terms of risk-reward."

Separately, Thai Beverage - itself a subject of speculation of a potential tie-up - saw its shares heavily traded on Friday.

On 58.2 million shares traded, it was the blue-chip index's most active, closing three Singapore cents or 3.6 per cent higher at 86.5 Singapore cents.

Observers said that investor interest in the counter was piqued after midweek news reports suggested that Thai Beverage could be a potential partner of Anheuser-Busch InBev's (AB InBev) Asia-Pacific unit after it lists in Hong Kong, with trading expected to commence on July 19.

The US brewer, which is the largest globally, is seeking to raise up to US$9.8 billion in Hong Kong for its regional business, which would make it the year's largest initial public offering globally.

"In addition to paying down debt, the deal provides AB InBev with a platform for M&A whereby local brewers such as ThaiBev might prefer to tie up with a locally focused player in an Asian currency," Nico von Stackelberg of Liberum told Reuters on Wednesday.