This morning, Eng Teknologi shares drops 1.78% to RM2.21 compare to yesterday. This might due to the news listed as below.
ENG Teknologi Holdings Bhd (Eng Tek), the Penang-based hard disk drive (HDD) components manufacturer, is the latest in a string of listed companies heading towards privatisation on the argument that its shares have been undervalued by the market.
In a filing to Bursa Malaysia last Friday, Eng Tek acknowledged it had received a buyout offer from TYK Capital Sdn Bhd, the investment vehicle owned by Datuk Teh Yong Khoon and Low Yeow Siang, the founders and major shareholders of Eng Tek. They collectively own a 23.2% stake in the company. The proposed buyout of Eng Tek is for an indicative price of RM307.2mil.
The proposal by TYK is to acquire all the assets and liabilities of Eng Tek at an offer price of RM2.50 per share for 121.63 million shares and the intrinsic value 4.66 million employees share options (ESOS).
An Affin Investment Bank report said the privatisation offer price was approximately 9.6% above Friday's closing price and also above its 10-year average share price of RM1.47, though short of its recent high of RM2.75 in March 2010.
In the past year, Eng Tek shares hit a 52-week high of RM2.38 last July to a low of RM1.62 last month as HDD-related stocks took a beating from a major sell-off. The past six months have been comparatively more stable for Eng Tek. Its shares traded on a range between RM1.62 and RM1.78.
But after the announcement on Friday, Eng Tek's shares rose to its highest since July 28 this year to close at RM2.28 from RM2.14 the previous day.
At the market close yesterday, the stock was at RM2.25. In a letter to Eng Tek, TYK claimed it has adequate financial resources to undertake the acquisition. The Affin report said: “Should the proposed takeover offer be accepted, Eng Tek would become a cash-rich company with approximately RM307.2mil cash based on its current outstanding shares of 122.8 million. It is then proposed that Eng Tek undertakes a capital reduction exercise to return the cash to shareholders.”
Teh told StarBiz the privatisation was aimed at addressing the low valuation of Eng Tek's shares and unlocking value for its current shareholders. “I'm not sure why our shares have been undervalued. The market just wasn't able to give us a good valuation.
“The privatisation will enable Eng Tek to be more competitive as we grow larger.
“We would no longer be bound to the funding requirements of a listed company such as dividends and other commitments,” he said.
Teh is also the chief executive officer of Eng Tek while Low is his mother.
Since the buyout is a related party transaction, the interested directors of Eng Tek, including Teh and Low, will have to refrain from deliberations and voting at the relevant board meetings.
Only non-interested directors can decide on the transaction. Under new Bursa Malaysia listing requirements, a listed company must obtain the approval of 75% or more of shareholders when undertaking a privatisation.
Analysts are generally positive on the privatisation exercise.
Affin said: “In our opinion, we think the privatisation offer is fair and doubt that prevailing fundamentals alone (in the absence of the privatisation offer) would have been able to re-rate the share price to RM2.50 at least over the near term.
“We therefore believe that investors would be better off accepting the offer especially given the volatility in global equity markets and the weak fundamentals in the sector.”
Affin has an “add” call to the stock.
ECM Libra Investment Research maintained a “neutral” recommendation for the technology sector, saying Eng Tek's merger and acquisition news may bring some positive sentiments to the sector and stir interest in other HDD component makers' stocks in the short term.