This article first appeared in The Edge Financial Daily on September 13, 2018
KUALA LUMPUR: Unisem (M) Bhd's controlling shareholder John Chia and China’s Tianshui Huatian Technology Co Ltd (TSHT) are making a pre-conditional voluntary conditional takeover offer for the semiconductor firm at RM3.30 per share — a 11.11% premium over the last traded price before the announcement.
The takeover offer will cost them RM1.82 billion in total. However, the offerors intend to maintain the listing status of Unisem.
The pre-conditional offer came after both parties signed the collaboration agreement yesterday.
Formally, the bid is being made by Huatian Electronics Group (HK) Ltd (HT Hong Kong) and Huatian Technology (Malaysia) Sdn Bhd (HT Malaysia) on behalf of TSHT, as well as John, his son Alexander Chia Jhet-Wern, and John’s private vehicles, Jayvest Holdings Sdn Bhd and SCQ Industries Sdn Bhd.
However, it is interesting to note that the agreement stipulates that the stake held by TSHT will always be at least 10% larger than that held by John, who is the executive chairman and managing director of Unisem, and his family members, who currently hold a collective 24.28% equity interest.
“Upon completion of the offer, TSHT via HT Malaysia will be the single largest shareholder of Unisem,” the group said in its stock exchange filing, adding that John and family will not acquire any offer shares pursuant to the offer.
A total of 79.24% of the offer shares, or 60% of Unisem’s shares, will be taken up by HT Malaysia, and the remaining 20.76% of offer shares, or 15.72% of Unisem shares, by HT Hong Kong, it added.
At the current juncture, the making of the offer is conditional upon approval by TSHT shareholders, the issuance of an overseas investment certificate for enterprises from China’s Gansu Department of Commerce, recordation for the offer from the National Development and Reform Commission and the necessary foreign exchange registrations.
“This pre-conditional offer announcement does not amount to a firm intention to make the offer by the joint offerors,” Unisem said.
The group added that the offer will not be made unless and until the pre-conditions have been satisfied no later than six months from the date of the collaboration agreement.
The parties also agreed that the current management team and operations of Unisem will remain unchanged upon completion of the offer, with an increase in Unisem’s board by three directors, who are nominees of TSHT.
Unisem said that the collaboration would enable TSHT to further strengthen its global presence by leveraging on Unisem’s network of customers in Europe and North America.
Meanwhile, Unisem will benefit from TSHT’s significant presence in China’s semiconductor industry, being among the largest outsourced semiconductor assemblies and test players worldwide.
Unisem has operated a semiconductor assembly and test facility in Chengdu, China since 2006, which is in the midst of a third phase of expansion. The group also has operations in Ipoh and in Batam, Indonesia.
Offer values group at PER of 21.71 times
Based on Unisem’s earnings for the last 12 months, the offer price values the group’s shares at a price-earnings ratio (PER) of 21.71 times. The group’s current trailing 12-month PER is 19.87 times as at its last closing price, according to Bloomberg data.
This is comparable to its peers in Malaysia's semiconductor industry. Both Inari Amerton Bhd and Globetronics Technology Bhd are trading at higher PERs of 20.35 times and 27.2 times respectively, while Malaysian Pacific Industries Bhd is trading at a PER of 16.38 times and VS Industry Bhd is trading at 17.57 times its earnings.
Eleven out of 12 analysts with coverage on Unisem have a consensus target price (TP) of RM2.57, with four “buy” recommendations, five “holds” and two “sell” calls, Bloomberg data shows.
TA Securities, which has the highest TP for Unisem at RM3.25 per share, expects the group to record stronger earnings in the coming quarters due to the weaker ringgit. US dollar revenues are expected to “grow modestly” quarter-on-quarter, it said in an Aug 3 note.
Unisem had reported a 26% decline in net profit year-on-year to RM31.14 million from RM42.09 million previously due to the depreciation of the ringgit against the dollar and a change in its product mix, which impacted profit margins. Quarterly revenue had declined 6% to RM343.2 million from RM365.74 million.
MIDF Research is less optimistic as recovery in the group’s financial performance is seen to be slow. In an Aug 3 note, the research house said fluctuations in the foreign exchange rate would affect the group’s cash balance, which has been seen to affect dividend payments.