QL launched a takeover on Lay Hong for 3.50 apiece.(5th Nov 2014)

P/E : 24.6 (3.45/0.14)
Forward P/E : 10.9
3.45 X [(Q1 2014~3.12, Q2 2014~12.64) X 2 (annualized it by X2)]

P/BV : 1.35 - Fail
Dividend per share : 0.05 (2010 0, 2011 0.05, 2012 0.05 2013 0)
Dividend Yield : 1.45% - Fail

Current Ratio : 0.79 – Fail
Quick Ratio : 0.36 – Fail
Debt/Equity Ratio : 2.32 - Fail

Last AGM saw 63% shareholders booted Chia Mak Hooi (QL) out from the board of directors. It seems odd in our industry. QL is 24x larger than Lay Hong and investors perceive QL is able to bring value from their synergy in Lay Hong. What is going on? I dare to put on an assumption; my guts feeling telling me that Lay Hong owns more than 50% instead of 44.17% via friendly parties/proxies.

At 3.50 a piece with historical PE 24 is very pricey but Yap’s family said the offer is NOT FAIR and NOT REASONABLE. No need ask uncle/auntie/ah kuai out there la. It is not about the price, the company is not for sale! ASSUMING my guts feeling is correct that Yap’s family holding more than 50% of voting rights and do not plan to sell, what will be the upcoming issues?
The issue is: THE OFFER IS CONDITIONAL!

QL offering to buy Layhong with A CONDITIONAL VOLUNTARY TAKEOVER OFFER @ 24 Sept 2014 (now MANDATORY – after exceeded 33%). What does it mean?

In a lay man term: QL will be obligated to buy your shares at 3.50 a piece PROVIDED QL OWNS and RECEIVED MORE THAN 50% + 1 share of Layhong. IF QL FAILS TO GET 50% + 1 share of Layhong, the 3.50 a piece is NO DEAL! QL will return the shares to you even if you have signed to surrender your shares to QL. Latest filing at Bursa @ 4th November shows that QL owns 37.31% of Layhong shares. ASSUMING Yap’s family owns more than 44%, I wonder how the deal would go through.

AS A MINORITY, WHAT AM I GOING TO DO?

‘Base on offer received, value it and react!’

1. If I have Layhong shares:
Offer 3.50 (historical PE 24) to buy my 2.30 a piece (pre VGO) is fair and reasonable, SELL TO THE MARKET.
2. If I do not have Layhong shares:
Do not touch. PE 24 with a net profit margin 1.24% (2014) is no good.
3. If MGO fails, most likely price will drop back to the range of pre VGO: 2.20 to 2.40 (PE 16 +-) QL will return to you your shares (3.50 NO GO). If MGO succeeded, you will get paid 3.50 apiece. Which one is better? You decide.

In this QL VS Layhong scenario, actually there is no loser between them. Layhong not intended to sell and they got their objective met by booting Chia out from the board. Now Yap’s family can run the company freely. For QL case, they came in at 2010 at the price of 1.05 for 24% stake. Assuming MGO fails, price drop to 2.10 apiece, the still made a tidy gain of 100% for 4 years of investments. Not bad at all for Dr. Chia Song Kun, the man behind QL.

P/S: The price now at 3.45 due to 0.05 dividend Ex at 16 October 2014. Have to minus that out.

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Regards,

Humble Pie,
Invest Coach