This article first appeared in The Edge Financial Daily on September 14, 2018

Unisem (M) Bhd
(Sept 13, RM3.10)
Accept offer with a target price (TP) of RM3.30: Subsequent to the trading suspension, Unisem (M) Bhd announced that it has received a preconditional voluntary conditional takeover offer jointly from Tianshui Huatian Technology Co Ltd (TSHT) and its directors, namely John Chia and Alexander Chia.

The preconditional offer was made for a cash consideration of RM3.30 per share, valuing the company at RM2.4 billion. The offer price will be adjusted if any dividend is declared beyond this announcement.

The offer is conditional upon the approval by TSHT’s shareholders, the issuance of an Overseas Investment Certificate for Enterprises from China’s Gansu Department of Commerce, recordation of the offer from China’s National Development and Reform Commission, and all necessary foreign exchange registrations with China’s State Administration of Foreign Exchange.

Currently, the directors collectively hold a total of 24.3% equity interest in Unisem. TSHT will take up the remaining 75.7% split between Huatian Technology (Malaysia) Sdn Bhd and Huatian Electronics Group (HK) Ltd with 60% and 15.7% stakes, respectively.

The offerors will ensure Unisem’s floatation is maintained after the exercise by complying with the public spread requirement of 25%.

Unisem is complementary to TSHT as it will allow the latter to further strengthen its global presence, especially in Europe and North America. Leveraging TSHT’s dominance in China, Unisem would be able to expand its Chengdu operations more rapidly.

This development is perceived positively and we opine that this will be a synergistic deal for both Unisem and TSHT.

At RM3.30 apiece, Unisem is valued richly at 26.6 times and 19.4 times based on our financial year 2018 forecast (FY18F) and FY19F earnings per share, respectively. This valuation is way higher than the 15 times forward price-earnings that we ascribed to Unisem.

As such, we advise investors to “accept offer” at RM3.30. Although the second quarter of FY18 (2QFY18) staged a modest recovery from the dismal 1QFY18, we remain cautious about its outlook.

We like its exposure to the automotive and China markets. The strengthening greenback is a positive catalyst. — Hong Leong Investment Bank Research, Sept 13