A close look at Weida’s takeover offer

KUALA LUMPUR (Feb 2): Little-known Weida (M) Bhd founder Datuk Lee Choon Chin, who is also a major shareholder, intends to take the company private through a selective capital reduction and repayment that will distribute RM2.40 per share to minority shareholders.

The offer is at a 17% premium over the last traded price before the announcement. As the saying goes, the offerors will not have wanted to take a company private if they do not see value in it. In the case of Weida, is this a good deal that provides minority shareholders an exit from the stock that is hardly traded?

On Monday, through his investment vehicle Weida Management Sdn Bhd together with parties acting in concert owning a 33.29% stake, Lee made a request to the company’s board to propose a selective capital reduction and repayment to pave the way for the privatisation exercise.

Sitting on a cash pile of RM104.9 million, it makes sense for the controlling shareholder to opt for this route to take Weida private. On a back-of-the-envelope calculation, Lee is expected to fork out about RM98.27 million, or RM1.16 per share, to make up the difference to pay RM2.40 per share to the minority shareholders who collectively hold 84.65 million shares.

In the announcement to Bursa Malaysia, Weida said that the rationale for the privatisation is partly because it was not being valued fairly by the market. The cash-rich diversified group, which is involved in property development, water engineering, telecommunications infrastructure and renewable energy, was valued at about RM230 million before the recent share price surge.

“The investors at large appear to be unable to accord Weida with a valuation in line with its net assets and the condition is not expected to change anytime soon in view of the challenging market environment,” said Weida in the announcement.

The remark prompts the investing fraternity to ponder what the fair value is for Weida, which has a government concession under its belt and no one can rule out the likelihood that it could win more in the future.

In April last year, Weida’s 49% associate owned Asaljuru Weida Sdn Bhd secured a 20-year government concession worth RM351 million to build new buildings and facilities for the Sarawak General Hospital under a build-lease-maintain-transfer model. Asaljuru Weida then signed a concession agreement (CA) with the health minister for the proposed project.

Back on the privatisation exercise, the capital repayment of RM2.40 per share is at a premium of 35 sen, or 17.07%, over Weida’s last traded share price of RM2.05 before the announcement, and it is at a 44.44 sen or 22.72% premium against its one-month volume weighted average market price (VWAMP).

Furthermore, it is worth noting that Weida’s share price had surged shortly before the announcement. Over the past one year, the stock has been trading mainly between RM1.80 and RM1.90.

Still, the offer price is at a discount of 91 sen or 27.5% to the group’s net asset value per share of RM3.31 as at Sept 30, 2017.

The company has been profitable in the past five financial years, and it has a rather clean balance sheet with a gearing ratio of less than 0.3 times. According to its annual report, Weida owns pockets of land in Miri, Kota Kinabalu and some in Negeri Sembilan. Most land was revalued in 2015.

“This is one scenario in which the controlling shareholder could take advantage of the undervalued assets,” said a regional fund manager who has interest in mid- and small-cap counters.

“Weida is a decently run company, but [the] ROE (return on equity) is too low,” he commented. This explains why its share price isn’t performing well. The company has [a] single-digit ROE in the past three financial years ended March 31. Its ROE was at 4.78% in the financial year ended March 31, 2015 (FY15), 6.68% in FY16 and 4.45% in FY17. Simply put, a low ROE would mean the company’s equities are not generating decent yield.

For the six months ended Sept 30, 2017, Weida’s net profit declined by 41% to RM9.26 million, from RM15.71 million last year as its revenue was down 34.7% to RM117.27 million, against RM176.52 million a year ago. The company attributed the decline in earnings to lower revenue generated in its infrastructure works division and property development division.

For the proposed selective capital repayment, Weida’s board is required to have a 75% shareholding approval from the non-interested shareholders. The capital payment of RM2.40 is indeed a level that Weida’s share price has not reached since it was listed in 2001. Hence, it may not be that difficult a task for the board to obtain the required approval.

This article first appeared in The Edge Financial Daily, on Feb 2, 2018.

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