Tsit Wing Int'l Holdings Ltd: Proposes voluntary delisting

Privatisation offer at S$0.27/share. Tsit Wing International Holdings Ltd (TWI) has proposed a voluntary delisting. The major shareholders of the group, who collectively owns 75.9% of issued capital, have sought to take the company private by making an exit offer at S$0.27 per share via its investment vehicle Fair Link Investments Ltd. The offer price represents a 35.0% premium to TWI's pre-suspension price and six-month VWAP of S$0.20, and a 22.7% premium to our S$0.22 fair value estimate. The offer prices TWI at 14.2x FY08 PER and 13.9x FY09F PER, a premium to the stock's historical high PER of 10.1x and average of 7.5x. In terms of P/B, it is priced at 1.2x FY08 NAV and 1.1x FY09F NAV, close to its average of 1.3x. Given that the stock has been hovering at S$0.20 with minimal price movement and extremely low liquidity, we are in favour of the privatisation offer.

Rationale behind delisting. TWI's decision to delist was driven by the stock's low trading liquidity, compliance costs of maintaining its listed status, and low valuations in management's view. We are not surprised by the company's decision to delist, given that the stock turned in an average daily volume of just 38,254 shares over the past year, and exchanged hands on only 25 days in the past 12 months. The low liquidity was in part due to its small free float of just 24.1%. Given its extremely low liquidity, the costs of maintaining its status as a listed company outweighs the benefits. A delisting could allow the group greater flexibility in its restructuring and expansion plans while allowing it to save on listing-related expenses.

No near term price drivers; accept the offer. TWI's earnings have been lacklustre. 1Q09 earnings fell by 49.4% YoY to HK$4.4m while FY08 earnings plunged 43.5% to HK$20.0m. Earnings have been volatile with poor visibility owing to wild swings in profits and losses incurred from the group's coffee hedging derivative instruments. The group's weak earnings have impaired its dividend payout, which was cut from 11 HK cents in FY07 to just 6 HK cents in FY08. Going forward, there are no near term price drivers or earnings catalysts. TWI's delisting offers shareholders an opportunity to exit at relatively reasonable valuations, in our view. As such, we are inclined to accept the offer.

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