SKP, Tecnic see profit taking after rising on M&A news

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KUALA LUMPUR (Oct 3): SKP Resources Bhd and Tecnic Group Bhd advanced as much as 9% and 4% respectively after the former announced plans to buy the latter's operating units for RM200 million.

SKP subsequently erased gains to settle at 67.5 sen at 12.30pm with about 12 million shares traded. The stock was earlier traded between an intraday low and high of 64 sen and 75 sen respectively.

SKP warrants SKPRES-WA declined two sen or 8% to settle at 23 sen with some 47 million units done. The second most-active counter on the exchange had earlier risen as much as four sen or 16% to 29 sen.

Meanwhile, Tecnic saw investors taking profit after the stock reached an intraday high of RM5.30. Tecnic settled flat at RM5.08 with 611,300 shares done.

SKP and Tecnic's share trade resumed at 10am today following a suspension between last Tuesday and yesterday.

Yesterday, SKP said it was buying Tecnic's business for RM200 million under a cash and stock deal.

SKP said it had signed a conditional share sale and purchase agreement with Tecnic to buy the entire issued share capital of Tecnic’s three wholly-owned subsidiaries.

They are Plastictecnic (M) Sdn Bhd, Sun Tong Seng Mould Tech Sdn Bhd and Bangi Plastics Sdn Bhd. The acquisitions involve payment of RM100 million in cash and an issuance of 172.4 million new shares in SKP at 58 sen apiece.

The acquisition is a related-party transaction as Datuk Gan Kim Huat and family collectively own 70.5% and 68.7% in SKP and Tecnic respectively.

RHB Research Institute Sdn Bhd analyst Fong Kah Yan said the firm was positive on the acquisition as it enabled SKP to consolidate its position as a leading plastic component manufacturer.

Fong said this was given the target companies’ strong capabilities in the precision, mould designing and fabrication business.

“The acquisition is value accretive, given SKP Resources’ current price-to-earnings (P/E) ratio of 13.7 times.

"The purchase consideration of RM200 million values the three companies at an acquisition P/E of 11.3 times, based on their trailing four quarters profit after tax of RM 17.6 million, which we consider fair,” Fong said in a research report today.