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Wing Tai Holdings launches RM291m takeover bid for Malaysian counterpart


SINGAPORE-LISTED Wing Tai Holdings launched a RM290.7 million (S$94 million) takeover offer on Tuesday for its Malaysian-listed counterpart Wing Tai Malaysia Berhad (WTM) at RM1.80 cash per share - a move seen as streamlining its businesses, and which may be a re-rating catalyst for the counter.

The offer price represents about 52.5 per cent premium over WTM's last traded price of RM1.18 on Monday and 57.9 per cent to its three-month volume weighted average market price.

Wing Tai Holdings and its wholly owned unit Wing Tai Investment & Development Pte Ltd (WTID) - the joint offerors controlled by the Cheng family - directly own 66.13 per cent of WTM. Maybank Investment Bank has been appointed as the financial adviser to the joint offerors.

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In an announcement shortly after both Wing Tai Holdings and WTM requested for trading halts on their respective stock exchanges, Wing Tai Holdings said the offer was not subject to any minimum level of acceptances as the joint offerors already hold over 50 per cent of the voting shares in WTM.

WTM said that it has received the unconditional voluntary takeover offer. "The Board will hold a board meeting to deliberate the offer and make an announcement in due course," it added. Trading of shares in Wing Tai Holdings and WTM will resume on Wednesday morning as both lifted their respective trading halts following their announcements.

Through its subsidiaries, WTM is involved in property development and investment, retail operations, garment manufacturing and investment holding. Its development projects are mainly in Kuala Lumpur and Penang, while its fashion retail business includes brands such as Karen Millen, Topshop, Dorothy Perkins and Miss Selfridge, as well as a joint venture to operate Uniqlo outlets in Malaysia.

Wing Tai Holdings said the offer would allow the group to further integrate the financial and operational resources across its subsidiaries, which should result in cost savings and achieve better operational efficiencies.

It also offers minority shareholders of WTM the opportunity to exit and to realise their investments. "Should the offer result in the joint offerors successfully de-listing and owning 100 per cent of WTM, the joint offerors shall have greater flexibility to facilitate ease of review and execution of any restructuring plan for WTM and its subsidiaries, where necessary," it added.

The acquisition of the offer shares will be funded by internal cash resources of the group.

Based on the latest audited results of WTM for the financial year ended June 30, both the net asset value and net tangible asset per WTM share was RM2.70 while the earnings per WTM share was about 2.24 cents. Its net profit for the fiscal year was RM10 million, down from RM69.6 million in the previous financial year.

UOB KayHian analyst Vikrant Pandey noted that investors who want to have access to WTM's Malaysian exposure will soon have to go through the Singapore-listed parent firm. This may present a re-rating opportunity for Wing Tai.

OCBC Investment Research analyst Eli Lee deemed the offer price for WTM as fairly reasonable and the move as a sensible one given Wing Tai Holdings Ltd's healthy balance sheet with ample dry powder.

"The group will be deploying capital accretively into assets that it already understands well, and a potential privatisation of Wing Tai Malaysia Berhad will also allow the group to further explore cost savings and improved operational efficiencies," said Mr Lee, who has a "buy" rating on Wing Tai Holdings with a fair value estimate of S$2.37.

But the bigger question that some analysts are mulling over is whether this marks a precursor for the eventual privatisation of Wing Tai Holdings itself; the group maintained a strong cash hoard of S$748 million as of March 31, with net gearing ratio of 0.07 times. Religare Capital Markets (Singapore) director of Asean sales, Tata Goeyardi, noted that Wing Tai remains an attractive privatisation candidate in itself, while the material benefits for privatising WTM are unclear though it will save on compliance costs.

Maybank Kim Eng analyst Derrick Heng, who declined to comment because Maybank Investment Bank is involved in the offer, had a "hold" call on the stock on May 12 after Wing Tai reported a net profit of S$10.6 million for the nine months ended March 31 that was broadly in line with 65 per cent of his full-year estimate.

"Wing Tai's conservative land acquisition strategy has led to land-bank depletion and low development earnings visibility," he added. "While a strong cash balance implies that it has significant capacity to purchase new development land, we believe escalating land prices has made it increasingly difficult to do so. This, together with a thin recurring income base, will lead to weak shareholder returns near term."

Meanwhile, sales at Wing Tai Holdings' residential projects remain slow. It is still holding up prices at luxury project Le Nouvel Ardmore, for which it has paid extension fees for unsold units under the qualifying certificate conditions, and is due to shell out the additional buyer's stamp duty (ABSD) on land cost for joint-venture condominium project The Crest - where 63 per cent of 469 units are still unsold - if it does not sell out by September.