HSL’s major shareholders have proposed to privatise HSL through a voluntary takeover, offering RM1.35/share for the remaining outstanding shares not owned by them. We find the offer of RM1.35/share fair as it implies ex-cash FY22E PER of 8.5x – within small mid-cap contractors’ FY22E PER range of 4-12x. Hence, we suggest minority shareholders accept the offer. In view of the privatisation, we are also ceasing coverage on HSL. Our last call was Market Perform with a TP of RM0.95.

Voluntary take-over offer at RM1.35/share. HSL’s major shareholders’ (HSLE Enterprise S/B, Dato Paul Yu, Madam Tang Sing Ngiik) have made a voluntary offer of RM1.35/share to acquire all the remaining 86.9m HSL shares (15.8% of outstanding shares) not held by them.

Fair price, accept offer. The price of RM1.35/share implies FY22E PER of 14x or an ex-cash FY22E PER of 8.5x. As of 3QFY21, HSL has RM292m in net cash (RM0.53/share) in their books. Compared against small mid-cap contractor peers* which are trading at Fwd. FY22E PER range of 4-12x, we find the valuation offered by major shareholders’ fair. Hence, we suggest minority shareholders accept the offer.

*peers include WCT, ECONPILE, GDB, GBGAQRS, KERJAYA and KIMLUN. Forward estimates are obtained from Bloomberg for counters not under our coverage.

In view of the privatisation, we also take this opportunity to cease coverage on HSL. Our last call was MARKET PERFORM with a TP of RM0.95 pegged to FY22E PER of 10x.

Source: Kenanga Research - 18 Feb 2022