Low Keng Huat (Singapore)

[weijian]

As of AR24, the company's debt is ~73% of equity value (before minority interests). Therefore the total capital outlay of the company is ~173% of equity (100% equity + 73% debt) with the 3 main components (making up 82%):

*48% are contract assets
*48% are PPE (mainly 3 hotels - Duxton Hotel Perth, Citadines Balestier and Lyf@Farrer)
*47% are Investment Properties (mainly 2 malls - Paya Lebar Square, BT Centre@Balestier)

For convenience sake, I will just focus on this 3 items.

(1) Contract assets: These are COGS of its development properties not yet billed to customers. Assume a ~5% PBT margin, it is probably worth another 5% more. Upon recognition, they will be worth ~15mil more (or 2cents per share).

(2) PPE: Recorded at cost and therefore there is hidden value in the book value. Based on AR24's note 41, there is excess of ~234mil over book value (or 31cents per share).

(3) Investment Properties: Recorded at cost and therefore there is hidden value. Based on AR24's note 41, there is excess of ~143mil over book value (or 19cents per share).

Based on AR24, a rough back-of-envelope estimate of the RNAV (or revalued NAV) would be the NAV + hidden value calculated above --> 81 cents (NAV) + 52 cents (revaluation of the contract assets/PPE/Investment properties to fair value) = 1.33sgd.

Based on my calculated RNAV of 1.33sgd, the 0.72sgd offer price is only 0.55x of RNAV. Based on my own historical tracking of IFA opinions, the property related takeovers that are comparable are Boustead Projects and Isetan. For both cases, ~0.65-0.7x RNAV was considered "fair and reasonable" by the IFA. In addition, the asset swap done between ThaiBev and TCC Asset in Sept2024 valued Frasers Property at 0.75-0.8x RNAV and that was deemed "fair and reasonable" by the IFA.

So unless we do not have a fair and reasonable IFA, the opinion is not expected to be "fair and reasonable".  This may explain why Mr Market has bid up the share price to the offer price of 72cents because from a merger arb perspective, it implies an almost "100% certainty" to the acquisition closing and that is generally not true. So in other words, Mr Market expects a better offer (with 72cents creating the anchoring bias) since the offer document has not stated that the price is final.

[weijian]

Arguably, the 201.6% TSR would have halved without the current offer.

On another note, whether Dato Low's offer will succeed or not, looks to be dependent on his 2 co-founder uncles (and family). I don't know the family nor had followed the company previously, but I think it is reasonable to assume that the uncles (or their families) would want fair coin.

Concerns of weak prospects at Low Keng Huat belie a history of strong shareholder returns

Along with its peers, LKHS has also experienced its return on equity (ROE) falling over the years. From FY2011 to FY2015, its ROE averaged 22.3 per cent, compared to a paltry 1 per cent from FY2021 to FY2025. Yet, LKHS has not let its long-term shareholders down. During the 15-year period to Nov 28, the group delivered a total return of 201.6 per cent, with dividends reinvested.

Low and his mother are not the only big holders of LKHS shares. For instance, the group’s executive chairman, Low Keng Boon, owns 52.8 million shares, or 7.2 per cent of the company. His wife, Lau Choy Lay, has a further 23 million shares, or a 3.1 per cent stake.

The estate of the late Low Keng Hoo holds another 52.9 million shares, 7.2 per cent of the company.

In fact, LKHS’ most recent annual report said only 23.5 per cent of its shares were in the hands of the public as at Apr 21.

https://www.businesstimes.com.sg/opinion...er-returns

[weijian]

Based on my calculated RNAV of 1.33sgd, the 0.72sgd offer price is only 0.55x of RNAV. Based on my own historical tracking of IFA opinions, the property related takeovers that are comparable are Boustead Projects and Isetan. For both cases, ~0.65-0.7x RNAV was considered "fair and reasonable" by the IFA. In addition, the asset swap done between ThaiBev and TCC Asset in Sept2024 valued Frasers Property at 0.75-0.8x RNAV and that was deemed "fair and reasonable" by the IFA.

So unless we do not have a fair and reasonable IFA, the opinion is not expected to be "fair and reasonable".  This may explain why Mr Market has bid up the share price to the offer price of 72cents because from a merger arb perspective, it implies an almost "100% certainty" to the acquisition closing and that is generally not true. So in other words, Mr Market expects a better offer (with 72cents creating the anchoring bias) since the offer document has not stated that the price is final.

The IFA report is out. Zico Capital looked at 5 Precedent Property Privatisation Transactions (Amara/Sinarmas Land/SLB Development/Global Dragon/Chip Eng Seng) and by taking the mean and median of the Price/RNAV, it derived 0.69-0.71x RNAV as the ratios to calculate the estimated values.

The below are drawn from the report (in italics):

Accordingly, we have used the mean and median offer price/NAV or offer price/RNAV ratios of the Precedent Property Privatisation Transactions to derive the estimated range of values of the Shares. Based on the above, this implies that the valuation of the Company is between S$639.8million and S$658.4 million. Based on the Company’s existing share capital of 738,816,000 Shares, this translates to the range of estimated value of the Shares of between S$0.87 and S$0.89. We note that the Offer Price of S$0.72 is lower than the estimated value of the Shares.

Having considered carefully the information available to us as at the Latest Practicable Date, and based on our analyses, we are of the opinion that the terms of the Offer are on balance, not fair but reasonable. Accordingly, we advise the Independent Directors to recommend Shareholders to ACCEPT the Offer.”

The Independent Directors, having considered carefully the terms of the Offer and the advice given by the IFA in the IFA Letter, concur with the advice of the IFA in respect of the Offer. Accordingly, the Independent Directors recommend Shareholders to ACCEPT the Offer.

-----------------------

Despite concluding that the offer is not fair, the IFA recommend the shareholders to accept the offer. I guess this is because there are a total of 20 factors (pg66-67) that the IFA considered as well. I suppose this reflects reality accurately as OPMIs are generally price takers and so accepting unfair offers is in the ordinary course of affairs.  

Along the same tune, the IDs also recommend shareholders to accept the offer.

[weijian]

So unless we do not have a fair and reasonable IFA, the opinion is not expected to be "fair and reasonable".  This may explain why Mr Market has bid up the share price to the offer price of 72cents because from a merger arb perspective, it implies an almost "100% certainty" to the acquisition closing and that is generally not true. So in other words, Mr Market expects a better offer (with 72cents creating the anchoring bias) since the offer document has not stated that the price is final.

Just before the revised offer, the share price closed at 73.5cents which is 1.5cents above the 72cent offer. Mr Market has accurately priced in the revised offer (and leading up to this revised offer, maybe there were some leaks ) 

But this final price of 78cents is still much lower than the IFA's 87-89cents range. And so LKH cannot be delisted. Will be interesting to observe how this evolves and see whether there is another merger arb opportunity ahead.

REVISION OF OFFER PRICE 

UOBKH wishes to announce, for and on behalf of the Offeror, that the Offeror is revising the Offer Price as follows: For each Offer Share: S$0.78 in cash (the "Final Offer Price").

UOBKH wishes to announce, for and on behalf of the Offeror, that the Offeror does not intend to revise the Final Offer Price. 

Shareholders who have earlier accepted the Offer are entitled to the Final Offer Price, subject to the Offer becoming or being declared to be unconditional in all respects in accordance with its terms. Accordingly, no further action in respect of the Offer is required to be taken by Shareholders who have already validly accepted the Offer.

https://links.sgx.com/FileOpen/LKHS%20-%...eID=871930

[weijian]

After market close on 13th Jan, Dato Marco (the Offeror) revised the offer price upwards. And in the very next trading day, Mr Alan Wang Yu Huei (Asdew Acquisitions) increased his stake from 1.4% to 7.29%. And with an average cost base of 77.25cents, Mr Alan Wang Yu Huei had effectively front-ran our Dato.

Since Mr Alan Wang Yu Huei is not one of the concerted parties and the cost base of thisadditional share purchase is only ~1% below the 78cents offer price, we can reasonably assume that he is not going to accept the offer.

Dato Marco's offer is a Voluntary Conditional General Offer. The condition for the offer to go through is that Offeror + concerted parties will have no less than 90% of shares at the close of offer. With Mr Alan Wang Yu Huei now holding 7.29%, there is a very good chance that this offer will fail to reach this condition.

Asdew's Wang raises stake in Low Keng Huat to 7.29% with open market buying

Wang, who makes his investments via an entity called Asdew Acquisitions, on Jan 14 paid $33,636,195 for 43,542,000 shares, which works out to 77.25 cents each.

The former director of Kim Eng Holdings is an active investor of local stocks. He now controls a total of 53,893,500 Low Keng Huat shares, or 7.29%, up from 1.4% previously, reads a Jan 15 filing.

https://www.theedgesingapore.com/news/co...ket-buying

[dydx]

After market close on 13th Jan, Dato Marco (the Offeror) revised the offer price upwards. And in the very next trading day, Mr Alan Wang Yu Huei (Asdew Acquisitions) increased his stake from 1.4% to 7.29%. And with an average cost base of 77.25cents, Mr Alan Wang Yu Huei had effectively front-ran our Dato.

Since Mr Alan Wang Yu Huei is not one of the concerted parties and the cost base of thisadditional share purchase is only ~1% below the 78cents offer price, we can reasonably assume that he is not going to accept the offer.

Dato Marco's offer is a Voluntary Conditional General Offer. The condition for the offer to go through is that Offeror + concerted parties will have no less than 90% of shares at the close of offer. With Mr Alan Wang Yu Huei now holding 7.29%, there is a very good chance that this offer will fail to reach this condition.

Asdew's Wang raises stake in Low Keng Huat to 7.29% with open market buying

Wang, who makes his investments via an entity called Asdew Acquisitions, on Jan 14 paid $33,636,195 for 43,542,000 shares, which works out to 77.25 cents each.

The former director of Kim Eng Holdings is an active investor of local stocks. He now controls a total of 53,893,500 Low Keng Huat shares, or 7.29%, up from 1.4% previously, reads a Jan 15 filing.

https://www.theedgesingapore.com/news/co...ket-buying

It is doubtful Wang bought the large 7.29% stake at such a high price close to $0.78 to challenge Marco to keep LKH listed and choose to take a long view with Marco, who quite obviously is motivated by the large gap between the realisable value of LKH's property assets against the price he is paying in this GO with the view to privatise the company. If successful, Marco will stand to reap a huge extra gain from the eventual sale of the property assets, over his starting position before launching this GO.

Wang's 7.29% is now an effective blocking stake - bearing in mind there are others who would not accept the revised offer at $0.78 - preventing Marco to achieve the 90% mark which gives him the right to pursue compulsory acquisition and delisting. If Marco wants to privatise LKH in this and one attempt, it is conceivable that he would buy Wang's 7.29% at a mutually agreeable price, which may trigger another price revision for this GO. This is the best outcome for Marco, Wang and the minority shareholders who have not sold or tendered in their shares. Of course, those who have sold their shares into the market would forgo this benefit.

[ghchua]

If Marco wants to privatise LKH in this and one attempt, it is conceivable that he would buy Wang's 7.29% at a mutually agreeable price, which may trigger another price revision for this GO.

Hi dydx,

I disagree with your comment above.

Please take note that the offeror had already said that the 78c offer price is final. There will not be any revision to the offer price. 
https://links.sgx.com/FileOpen/LKHS%20-%...eID=872467

[ghchua]

Since Mr Alan Wang Yu Huei is not one of the concerted parties and the cost base of thisadditional share purchase is only ~1% below the 78cents offer price, we can reasonably assume that he is not going to accept the offer.

Hi weijian,

Though the above is a good deduction, we cannot rule out the fact that he might accept the GO at 78c too, since his commission cost will be much lower than a normal retail investor and the net profit based on a large number of shares is quite substantial, even if there is only around 1% difference to the offer price. It can amount to a few hundred thousand dollars profit for a nice day of work. 

[dydx]

If Marco wants to privatise LKH in this and one attempt, it is conceivable that he would buy Wang's 7.29% at a mutually agreeable price, which may trigger another price revision for this GO.

Hi dydx,

I disagree with your comment above.

Please take note that the offeror had already said that the 78c offer price is final. There will not be any revision to the offer price. 
https://links.sgx.com/FileOpen/LKHS%20-%...eID=872467

Just for discussion, if Marco and Wang are willing to strike a deal for Wang's 7.29% at say $0.88 - and this price will be given to all other shareholders who have accepted the GO and those yet to accept, and if UOB Kay Hian goes to SIC to ask for approval to proceed, would SIC say "no"?

[ghchua]

Just for discussion, if Marco and Wang are willing to strike a deal for Wang's 7.29% at say $0.88 - and this price will be given to all other shareholders who have accepted the GO and those yet to accept, and if UOB Kay Hian goes to SIC to ask for approval to proceed, would SIC say "no"?

The word "final" has its legal implications. It cannot be simply ignored. Otherwise, anyone can say this is a "final" offer and then proceed to strike a deal with another party at a higher price during the offer period.

Another thing to note is that what happens to those shareholders who sold their shares in the market after the offeror announced that 78c is the final offer? Are you going to compensate them with 88c as well? If not, why? If yes, how much it is going to cost you and also track them down?