News  Redtone (RIB) announced that it has received a  conditional takeover offer from Berjaya Corp Bhd  (BCorp) for the shares that the latter does currently not  own. The offer comprises of a cash consideration of  RM0.80 each for the outstanding 64.16% shares and  RM0.32 for the outstanding 97.5m ICULS. The offer  will be available for acceptance for 21 days. 

 The offer was received from Juara Sejati S/B (JSSB),  a wholly owned subsidiary of Berjaya Group Bhd,  which is in turn a wholly-owned subsidiary of BCorp,  the ultimate offeror. 

 The mandatory offer was triggered subsequent to  JSSB’s recent acquisition of 10.53% stake in RIB  (from RIB’s chairman Datuk Seri Syed Ali’s vehicle  Tema Juara S/B (TJSB)), bringing the latter’s holding  in the company to 35.84% or 238.54m shares. 

 BCorp intends to maintain RIB’s listing status. 

 The offer price represents a 3.61% discount to RIB’s  last closing price of RM0.83 and 5.44% discount to its  5-day volume weighted average market price  (VWAMP). 

 The offer price also represents PER of 18.1x and  3.09x P/BV ratio, based on its FY14 audited account. 

Comments  We believe the takeover offer was triggered by a  technical GO rather than a hostile takeover. However,  this offer is likely to lapse as the offer price is below its  current market price. 

 The offer price of RM0.80/share is 3.9% above our fair  value of RM0.77 (based on our FY15 targeted PER of  14.5x) and 2.68x of its 1HFY15 P/BV, which we  deemed as fair based on our FY15 forecast. Thus,  there is no harm for short-term investors and/or traders  to take this opportunity and exit the company. 

 Having said that, we advocate long-term investors  to continue holding the shares given: (i) the recent  emergence of two strong major shareholders (Sultan  of Johor and Berjaya Group), suggesting that some  interesting corporate exercises could be in the making.  Market had earlier speculated that it could involve U  Mobile due to their common shareholder status. Based  on our back-of-the-enveloped calculations, U Mobile’s  market capitalisation could be potentially worth up to  RM861m-RM18.5b range (please refer to appendix A  for more details) if the group seeks for public funding,  (ii) potential underestimation of the 2x10MHz 2.6Ghz  spectrum value, which could be worth RM235m-  RM354m (please refer to appendix B for more  details), based on our earlier observation. Thus,  suggesting that the group current business is merely  valued at RM178m-RM297m market capitalisation,  implied P/BV ratio of 1.15x-1.93x range or 6.0x-10.0x  FY15E PER, which we believe is undervalued, and (iii)  RIB is currently bidding for a sizeable government data  project which could change the group’s FY16 financial  landscape if awarded. 

 All in all, we believe the abovementioned plans and/or  catalysts will only materialise in the mid-to-long term.  intact. 

Rating Accept Offer as the offer price of RM0.80 is higher than our initial target price of  RM0.77. 

Valuation  Raised target price to the takeover offer price of RM0.80 from RM0.77 (based on a targeted  FY15 PERE of 14.5x) previously 

Risks to Our Call  Failure to secure more corporate and government projects and impairment arises.  

Soure: Kenanga