Unisem received a pre-conditional takeover offer jointly from TSHT and its directors at RM3.30 per share. Listing status will be maintained after the deal. We view this development positively and believe that they are synergistic. However, with such a generous offer, we advise investors to ACCEPT OFFER.

NEWSBREAK

A generous offer. Subsequent to the trading suspension, Unisem announced that it has received a pre-conditional voluntary conditional takeover offer jointly from Tianshui Huatian Technology Co. Ltd. (TSHT) and its directors, namely John Chia and Alexander Chia. The pre-conditional offer was made for a cash consideration of RM3.30 per share, valuing the company at RM2.4bn. Offer price will be adjusted if any dividend is declared beyond this announcement.

Pre-conditions. The offer is conditional upon (1) approval by TSHT’s shareholders; (2) the issuance of an Overseas Investment Certificate for Enterprises from China’s Gansu Department of Commerce; (3) recordation for the offer from the National Development and Reform Commission of the PRC; and (4) all necessary foreign exchange registrations with the State Administration of Foreign Exchange of PRC.

Shareholding structure. Currently, the directors collectively hold a total of 24.3% equity interest in Unisem. TSHT will take up the remaining 75.7% split between HT Malaysia and HT Hong Kong with 60% and 15.7% stakes, respectively.

Listing status. The offerors will ensure Unisem’s floatation is maintained after the exercise by complying to the public spread requirement of 25%.

Rationale. Unisem is complementary to TSHT as it will allow the latter to further strengthen its global presence, especially to Europe and North America. Leveraging on TSHT’s dominance in China, Unisem would be able to expand its Chengdu operations more rapidly.

HLIB’s VIEW

This development is perceived positively and opine that this will be a synergistic deal to both Unisem and TSHT. At RM3.30 a piece, Unisem is valued richly at 26.6x and 19.4x based on our FY18f and FY19f EPS, respectively. This valuation is way higher than the 15x forward PE that we ascribed to Unisem.

Forecast: Maintained. As such, we advise investors to ACCEPT OFFER at RM3.30. Although 2Q18 staged a modest recovery from the dismal 1Q18, we remain cautious of its outlook. We like its exposures to automotive and China market. Strengthening greenback is a positive catalyst.

Source: Hong Leong Investment Bank Research - 13 Sept 2018