SCIENTX is proposing to acquire the remaining 38.1% of DAIBOCI shares and 95.8% of warrants for RM345.3m. We believe the offer price of RM2.70 is fair, as it is only 4% higher than our back-of-the-envelope DAIBOCI’s fair value calculation of RM2.60. The privatization of DAIBOCI should provide SCIENTX with greater control to streamline its business operations. Accounting for the additional stake in DAIBOCI, we increase our FY22E CNP by 5%. We maintain our MARKET PERFORM call on SCIENTX with a higher SoP TP of RM4.34 (from RM3.96) after the privatization on earnings accretion.

Proposed privatization. SCIENTX has proposed an unconditional voluntary takeover of its subsidiary, DAIBOCI for all the remaining shares and warrants. This offer is expected to be completed by 4QCY21 pending clearance from the SC. (refer overleaf for more)

Rationale of the privatization. We believe the purpose of SCIENTX’s proposed privatization of DAIBOCI is to gain full control in order to streamline its production and supply chain. However, we believe that any additional synergies from this exercise will be limited, as any operational synergies between DAIBOCI and SCIENTX would have already been realized.

Fair offer price. Based on our back-of-the-envelope calculation, by ascribing as PER of 13x to Bloomberg’s consensus FY22E CNP of RM65.7m, we believe DAIBOCI’s fair value per share is RM2.60. Thus, in our view, the offer price of RM2.70 is fair, as the 4% premium is justifiable to gain full control of DAIBOCI. The 13x ascribed PER is lower than our peers’ average of 15.5x mainly due to its lack of pricing power.

Likely half cash, half borrowing. Based on the regulatory filings, we assume that SCIENTX will fund half the privatization with internal generated funds and another half with debt. With the additional bank borrowings of RM172.6m, we estimate it would lift SCIENTX’s net gearing to 0.45x, (vs our net gearing FY21E-FY22E of 0.29-0.41x).

5% earnings accretion from privatization. After accounting for the post-tax additional interest expense (RM2.6m) for the privatization, SCIENTX’s acquisition of the remainder of DAIBOCI shares should increase the former’s FY22E CNP by 5% from RM456m to RM479m as we have included the full year estimate impact.

Maintain FY21 estimates, raise FY22 estimates. All in, we maintain our FY21 estimates. Accounting for SCIENTX’s acquisition of the remaining 38.1% of DAIBOCI, we raised SCIENTX’s FY22E revenue/CNP by 1%/5%. We maintain our FY21E DPS of 7.6 sen and increase FY22E DPS to 9.3 sen based on 30% payout ratio, yielding 1.7%/2.0%, respectively.

Maintain MARKET PERFORM with higher SoP-derived TP of RM4.34 (from RM3.96) as based on our FY22 estimates. We maintain our ascribed 12.5x PER for the property segment, but raised our ascribed plastics segment PER from 14.5x to 15.5x, marginally to be in line with the peers’ average of 15.5x, given the potential full control of an entity in its supply chain.

Source: Kenanga Research - 14 Sept 2021