This is at a 19% premium to its last traded price, 180% premium to its low reached in Jan’09, but at 2 cents discount to its IPO price of 30 cents (June’06) and 44% discount to its all time high of 50 cents hit shortly after the IPO.
This translates to a trailing PE of 8x, price to sales of 0.7x and price to book of 1x. Its 4-year historical average PE range from low of 4x to high of 10x, price to sales 0.4-1.1x and price to book 0.5-1.5x, hence the offer price values the stock roughly in-between the historical average valuation range.
An additional 9.7% of shareholders (Zhang Hongman, the treasury manager of the company, Lu Hong, the HR director, Zhang Qing Lin, director and GM of the company, Lou Yiliang is close business associate of the Chairman) have given irrevocable undetaking to vote in favour of the offer, giving the offeror a stake of 75.94%. There are no institutional shareholders with more than 5% of the company. (China Precision has not been a well-traded stock with average daily vol of about 150,000 share in the last 6 months).
An EGM will be held for shareholders to vote on the proposed privatisation offer and having already achieved the minimum 75% approval needed, the delisting proposal would be put through if not 10% or more shareholders vote against it.
We view the offer price as fair compared to Elec and Eltek’s which valued the stock at only 0.6x price to book (resulting in the independent advisers rendering the offer as too low), but not as compelling as Sihuan’s offer (the last privatisation offer) which valued the company close to its all time high share price and valuations (price to book of 3x, price to sales of 3.6x and PE of 9x).
This should be positive for other S-chips given that the offer price was done at 19% premium to its last traded price and 8x PE, 0.7x price to sales and 1x price to book is double that of the lows it hit and about in line with the average historical trading average.
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