This article first appeared in The Edge Malaysia Weekly on May 29, 2017 - June 4, 2017

THE May 23 unconditional takeover offer of Wing Tai Malaysia Bhd by Wing Tai Holdings Ltd and its subsidiary, Wing Tai Investment & Development Pte Ltd (both hold a combined 66.13% direct stake), has earned the ire of certain minorities who will be deprived of the opportunity to participate in the group’s earnings potential in the property and retail segments.

While the offer price of RM1.80 is at a 52% premium to its last-traded price of RM1.18 on May 23 (before trading was suspended following the announcement), it is 34% below the net tangible assets of RM2.73 per share as at March 31, 2017.

The announcement of the unconditional takeover came just after Wing Tai Malaysia returned to the black in the third quarter ended March 31, 2017 (3QFY2017). The group recorded a net profit of RM12.3 million in 3QFY2017 from a net loss of RM941,000 in 3QFY2016 on recovery in the retail division.

A fund manager with a local asset management company tells The Edge that the offer was decent, considering the level Wing Tai Malaysia was trading at. However, he notes that this would deny investors ownership of the strong brand names Wing Tai has under its umbrella — namely Uniqlo, Topshop, Topman and Dorothy Perkins.

“Despite what was reported by the papers on Wing Tai’s fundamental value, the market has not recognised that in the last two years,” he says.

Nonetheless, he thinks that the offer provides an exit route for investors immediately and for those who are still keen to have a stake in Wing Tai Malaysia, they can buy into Wing Tai Holdings, which is listed on the Singapore stock exchange.

Pangolin Investment Management director James Hay says the takeover price is massively undervalued, adding that Wing Tai Malaysia is worth RM1.63 billion or RM3.42 a share (see table).

He reckons that Wing Tai Malaysia’s high-end residential project opposite the Petronas Twin Towers, Le Nouvel, could turn in a profit of RM100 million or 21 sen per share. On this basis, he pegs Wing Tai Malaysia’s fair value at RM3.63 per share, using a sum-of-parts valuation.

Hay also points out that the free float requirement of 25% puts minorities at a disadvantage as they would be forced to accept an unfair offer or end up owning shares in an unlisted vehicle.

Bloomberg data shows Pangolin Investment owns about 2% of Wing Tai Malaysia with an average cost of RM1.61; it bought into the company in 2H2014. The Employees Provident Fund (EPF), which first bought into the group in 2015, has a 0.8% stake in Wing Tai Malaysia with an average cost of RM1.17.

OCBC Investment Research views the takeover as a positive development for Wing Tai Holdings. It says in a report dated May 24 that the offer price of RM1.80 is reasonable, considering that the net asset value of each Wing Tai Malaysia share is RM2.70.

The research house says the offer provides Wing Tai Malaysia’s minority shareholders the opportunity to exit and realise their investments for cash.

“The offer will allow Wing Tai Holdings to further explore synergies and integrate their financial and operational resources, which could result in cost savings and improved operational efficiencies,” it says.

Head of research at Etiqa Insurance & Takaful Chris Eng also says the takeover offer seems decent based on the market price. He notes that the market has become more competitive for Uniqlo over the last three years.

Loui Low, an analyst with Hong Leong Investment Bank, tells The Edge that the unconditional takeover offers an opportunity for traders to profit from the market.

“When the market started trading on Wednesday, it was already limit up. Given that the takeover price is at RM1.80, which is significantly higher than the RM1.18 at the time, it’s an opportunity for traders to buy in at a lower price before accepting the takeover offer. Of course, it easily hit the ceiling on Wednesday.

“What’s interesting is that despite trading at RM1.78 on Thursday, [the stock is still seeing] a huge buying interest from investors. Wing Tai’s trading volume in the last one year was only about 101,000 but the volume on Thursday alone was 6.6 million,” Low says.

A Kuala Lumpur-based stockbroker agrees with Low, saying the heavy volume at the RM1.78-to-RM1.79 range indicates that there is an opportunity for the takeover offer price to go higher.

“It’s hard to say if the takeover offer price would be revised upwards but the volume has not been seen in the last five years. It could also be that the traders would not mind buying in at this level to make a quick profit when they accept the offer at RM1.80,” he says.

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