Signature International Bhd has been performing below par in terms of share price having lost some 27% in value. The counter closed unchanged at 86 sen after its substantial shareholder Chin Hin Group announced its intention to raise its equity to 33.49% in Signature

A conditional mandatory general offer would be made for all the remaining Signature shares at a cash offer price of 84 sen per share.

The construction group said the acquisition price tag implied a price-to-earnings ratio of 13.12 times based on Signature’s trailing 12-month consolidated profit after tax and minority interest up to Sept 30, 2023. The price tag represents a 0.16% premium to Signature’s five-day volume-weighted average price (VWAP) but a 35.3% discount to the one-year VWAP.

Understandably, there is little incentive for investors to buy Signature at 86 sen given the offer price is only 84 sen. But Signature is currently hovering near its low in October 2022 and it is set to swing higher ahead. The counter was trading at its 52-week high of RM1.48 in May last year before crashing to a low of 82 sen in December.

Based on technical readings, the stock could be on its way to advance towards resistance thresholds of 95 sen (R1; 10% upside potential) and RM1.02 (R2; 19% upside potential). There is a downside risk of 9% with stop loss price of 78 sen.

Signature, which has changed its financial year-end to 31 December, posted net earnings of RM14.1million in 3QFY23, bringing 9MFY23 net profit to RM36.9 million. In terms of price/book value rating, the stock is currently trading at a multiple of 1.3x based on its book value per share of 66 sen as of end-September 2023.

The kitchen cabinet manufacturer has been receiving new orders that replenish its existing order book while continue to recognising revenue from backlog cases.

As at 30 September 2023, the group order book stood at RM241 million for kitchen and wardrobe system (Signature brand), RM569 million for Kitchen and Wardrobe System (Corten brand), and RM399 million for interior fit-out works.

Chin Hin disclosed that its gearing ratio has reached 1.72 times as at Jan 16 and the additional borrowings would raise its leverage to as high as 2.56 times.

The group estimated that total borrowings would increase to RM1.64 billion from RM1.03 billion after full issuance of Chin Hin’s RM470 million perpetual medium-term notes.

Chin Hin is 58.8%-controlled by Datuk Seri Chiau Beng Teik, of which 21.16% are direct ownership while 37.68% are indirect interest via his private vehicle and family members.

Even with potentially higher debt, Chin Hin said it is an "opportune time" to increase its stake in Signature given the latter’s positive earnings prospects and synergy between the duo going forward. These are hints that Signature will likely see further upside in its side and it will be timely for investors to jump in now.