Teckwah directors recommend shareholders accept privatisation bid

THE independent directors of Teckwah Industrial Corporation are recommending shareholders accept a voluntary conditional cash offer of S$0.65 per share from Clementine Investments, which is looking to take the mainboard-listed packaging, printing and logistics firm private.

The offer closes at 5.30pm on Sept 30. The offer price is final and Clementine Investments will not increase the offer price, Teckwah said in a circular issued to shareholders late on Tuesday.

Clementine Investments is a consortium of Teckwah's three largest shareholders, namely Chua Seng Tek Holdings, Lee Kay Huan Holdings and Airjet Investments.

In making their recommendation, Teckwah's independent directors had concurred with an assessment by independent financial adviser (IFA) RHT Capital, included in Tuesday's circular, that the financial terms of the offer are fair and reasonable.

RHT said the offer price represents a premium of about 17.8 per cent over the volume-weighted average price (VWAP) of Teckwah shares on Aug 7, which is the last trading day before the release of the offer announcement.

The offer price also represents a premium of 32.4 per cent and 38.3 per cent over the VWAP of the shares for the six and 12-month periods up to Aug 7 respectively.

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RHT said Teckwah's shares have never closed at or above the offer price since the company's initial public offering in 1994, and had consistently traded at a discount to the trailing net asset value (NAV) per share over the past two financial years.

While the offer price represents a discount of 4.4 per cent to the NAV per share, this is less than the range of discounts at which the shares had consistently traded over the 12-month period up to Aug 7, it added.

In its assessment, RHT also compared the weighted average valuation ratios of each of Teckwah's packaging printing, logistics and lifestyle businesses with broadly comparable Singapore and Malaysia-listed companies, including Tat Seng Packaging Group, Tiong Nam Logistics and Kingsmen Creatives.

It found that Teckwah's price to earnings (P/E) ratio of 15.6 times was within the range, and above the mean and median, of the weighted average P/E ratios for the comparable companies.

Meanwhile, Teckwah's enterprise value to earnings before interest, taxes, depreciation and amortisation ratio of 3.7 times was within the range of the ratios for the comparable companies.

RHT also pointed out that Teckwah's dividend yield of 2.3 per cent over the last 12 months was below the mean and median of the 3.3 per cent dividend yield for the comparable companies and the 4.5 per cent yield for the Straits Times Index exchange traded fund (STI ETF).

"This suggests that a shareholder who receives the proceeds from the offer may potentially experience an increase in investment income if he re-invests the proceeds from the offer price in the shares of the comparable companies that paid out dividends in their respective last financial year, or the STI ETF," RHT said.

The IFA noted that Teckwah's financial performance for H1FY20 was weakened by the Covid-19 pandemic, and is being supported by grants from government support schemes in Singapore and China. Without these grants, the group would have recorded a profit of S$1.9 million instead of S$5.3 million, it said, adding there is no assurance such schemes will continue to be provided. It pointed out that Teckwah expects the group's overall performance for FY20 to weaken if the global situation worsens.

Furthermore, given the current market conditions and uncertainties arising from the pandemic, there is no certainty that Teckwah's properties, plants and machinery can be sold at the market value stated in valuation reports, RHT added.

The group may face difficulties finding buyers willing to acquire these assets at the valuation amount, as the assets are specific to Teckwah's use, the IFA said.

In their offer letter in August, Clementine Investments said it is looking to delist Teckwah to enable "more flexibility to manage the business of the company and optimise the use of the company's management and resources during this time of economic uncertainty".

Teckwah shares last traded at S$0.64 on Sep 4.