KUALA LUMPUR: YTL Corp Bhd is making a voluntary share swap offer for YTL Cement Bhd at an offer price of RM4.50 per share.
The Edge had reported on Oct 17 that a corporate exercise was brewing in the YTL Group.
Under the proposed scheme, YTL Cement’s minority shareholders will be getting 3.17 YTL Corp shares for every existing YTL Cement share held.
Based on YTL Corp’s closing price of RM1.54 yesterday, the takeover offer values the group’s cement unit at RM4.88 per share, which is only a 6.12% premium over the market value.
Also, YTL Corp is offering RM2.21 for every RM1 in irredeemable convertible unsecured loan stocks (Iculs) of YTL Cement. This translates into 1.56 YTL Corp shares for each RM1 Iculs.
As at Dec 16, YTL Corp and its investment vehicle YTL Industries Bhd collectively hold 47.8% in YTL Cement.
According to some analysts, the minorities of YTL Cement seem to be getting the raw end of the deal, considering the cement manufacturer’s cash-rich balance sheet and its steady earnings growth over the past few years. But as the acquirer, YTL Corp is seen to be getting a good deal since YTL Cement is priced at a lower valuation.
“I do not think the offer is very compelling. If the consideration had been on a cash basis, it would have been much better. Furthermore, YTL Corp is virtually offering no premium,” noted an analyst from a local investment bank.
Based on YTL Cement and YTL Corp’s three-month volume weighted average moving price (VWAMP) of RM4.44 and RM1.43 respectively, the offer would have given almost no premium at 2.03%.
“You would expect a premium of at least 10%,” said the analyst who pointed out that the offer did not reflect a control premium.
A control premium is the amount an investor will pay to acquire control of a company. It is usually higher than the current market value of the company.
YTL Cement is also trading at relatively low valuations at 9.7 times price-earnings ratio (PER) and below book value at 0.97 times price-to-book (P/B) compared with its historical 10-year average PER and P/B of 10.67 times and 1.31 times respectively. The cement maker posted a net profit of RM75.8 million for its 1QFY12 ended Sept 30.
In comparison, Lafarge Malayan Cement Bhd, which made a net profit of RM71.3 million for the same period, is trading at 19.5 times PER and 1.79 times P/B.
YTL Cement’s low valuations can be attributed to the poor liquidity of the stock with the top 30 shareholders owning 86.5% of the company as at Sept 30. Some 52.8% of the company’s shares are already held by parties acting in concert.
In a statement, YTL group managing director Tan Sri Francis Yeoh said: “This transaction represents a homecoming opportunity for the shareholders of YTL Cement as it provides them with the opportunity to better maximise the value of their investments by exchanging their shares into the diversified business of YTL Corp.”
However, an analyst pointed out that, “YTL Cement’s shareholders could easily invest directly into YTL Power [Bhd], instead of having YTL Corp shares, if they had the cash and gain the exposure directly.”
YTL Power is the largest income contributor of YTL Corp, accounting for 81% of the latter’s earnings for FY11 ended June 30.
YTL Power shares are trading at 9.8 times PER and 1.43 times P/B.
In comparison, YTL Corp’s PER is much higher at 13.4 times with a P/B of 1.29 times, which makes YTL Power a much cheaper buy.
“Furthermore, investors who had gone into YTL Cement to get exposure to the construction boom will lose that direct exposure,” added the analyst.
In practice, holding companies often trade at a discount to their earnings-contributing companies because investors prefer direct exposure to their subsidiaries.
It is worth noting that YTL Cement has RM1.374 billion in cash with some RM866.2 million bank borrowings as at Sept 30.
The exercise will allow YTL Corp to gain access to YTL Cement’s net cash of RM508 million.
The extra cash in YTL Corp’s war chest will be good for the group which could take advantage of the suppressed asset valuations amidst current economic uncertainties.
Furthermore, an analyst noted that YTL Cement has not been very generous with dividend payment despite its ballooning cash pile.
According to Bloomberg, YTL Cement’s 12-month dividend yield is 2.86%, versus Lafarge’s 6.52%.
The outlook for the building materials sector is positive. Hence, it does make sense for YTL Corp to privatise YTL Cement as its shares are seen as undervalued.
This article appeared in The Edge Financial Daily, December 20, 2011.
The Edge had reported on Oct 17 that a corporate exercise was brewing in the YTL Group.
Under the proposed scheme, YTL Cement’s minority shareholders will be getting 3.17 YTL Corp shares for every existing YTL Cement share held.
Based on YTL Corp’s closing price of RM1.54 yesterday, the takeover offer values the group’s cement unit at RM4.88 per share, which is only a 6.12% premium over the market value.
Also, YTL Corp is offering RM2.21 for every RM1 in irredeemable convertible unsecured loan stocks (Iculs) of YTL Cement. This translates into 1.56 YTL Corp shares for each RM1 Iculs.
As at Dec 16, YTL Corp and its investment vehicle YTL Industries Bhd collectively hold 47.8% in YTL Cement.
According to some analysts, the minorities of YTL Cement seem to be getting the raw end of the deal, considering the cement manufacturer’s cash-rich balance sheet and its steady earnings growth over the past few years. But as the acquirer, YTL Corp is seen to be getting a good deal since YTL Cement is priced at a lower valuation.
“I do not think the offer is very compelling. If the consideration had been on a cash basis, it would have been much better. Furthermore, YTL Corp is virtually offering no premium,” noted an analyst from a local investment bank.
Based on YTL Cement and YTL Corp’s three-month volume weighted average moving price (VWAMP) of RM4.44 and RM1.43 respectively, the offer would have given almost no premium at 2.03%.
“You would expect a premium of at least 10%,” said the analyst who pointed out that the offer did not reflect a control premium.
A control premium is the amount an investor will pay to acquire control of a company. It is usually higher than the current market value of the company.
YTL Cement is also trading at relatively low valuations at 9.7 times price-earnings ratio (PER) and below book value at 0.97 times price-to-book (P/B) compared with its historical 10-year average PER and P/B of 10.67 times and 1.31 times respectively. The cement maker posted a net profit of RM75.8 million for its 1QFY12 ended Sept 30.
In comparison, Lafarge Malayan Cement Bhd, which made a net profit of RM71.3 million for the same period, is trading at 19.5 times PER and 1.79 times P/B.
YTL Cement’s low valuations can be attributed to the poor liquidity of the stock with the top 30 shareholders owning 86.5% of the company as at Sept 30. Some 52.8% of the company’s shares are already held by parties acting in concert.
In a statement, YTL group managing director Tan Sri Francis Yeoh said: “This transaction represents a homecoming opportunity for the shareholders of YTL Cement as it provides them with the opportunity to better maximise the value of their investments by exchanging their shares into the diversified business of YTL Corp.”
However, an analyst pointed out that, “YTL Cement’s shareholders could easily invest directly into YTL Power [Bhd], instead of having YTL Corp shares, if they had the cash and gain the exposure directly.”
YTL Power is the largest income contributor of YTL Corp, accounting for 81% of the latter’s earnings for FY11 ended June 30.
YTL Power shares are trading at 9.8 times PER and 1.43 times P/B.
In comparison, YTL Corp’s PER is much higher at 13.4 times with a P/B of 1.29 times, which makes YTL Power a much cheaper buy.
“Furthermore, investors who had gone into YTL Cement to get exposure to the construction boom will lose that direct exposure,” added the analyst.
In practice, holding companies often trade at a discount to their earnings-contributing companies because investors prefer direct exposure to their subsidiaries.
It is worth noting that YTL Cement has RM1.374 billion in cash with some RM866.2 million bank borrowings as at Sept 30.
The exercise will allow YTL Corp to gain access to YTL Cement’s net cash of RM508 million.
The extra cash in YTL Corp’s war chest will be good for the group which could take advantage of the suppressed asset valuations amidst current economic uncertainties.
Furthermore, an analyst noted that YTL Cement has not been very generous with dividend payment despite its ballooning cash pile.
According to Bloomberg, YTL Cement’s 12-month dividend yield is 2.86%, versus Lafarge’s 6.52%.
The outlook for the building materials sector is positive. Hence, it does make sense for YTL Corp to privatise YTL Cement as its shares are seen as undervalued.
This article appeared in The Edge Financial Daily, December 20, 2011.
