Yes. Posting Date is considered today. The First Closing Date is 5pm Oct 25, 2021. The formal the three-week offer period has just started.

This info has just been posted on the Bursa Company Announcement.

@iknownuts, salute you for reading faster than I do!

We’re coming to the end of the three week offer period now (if not extended).

The latest status with Daibochi mother share:

Total shares: 327.372m
Scientex: 217.546m or 66.45% (before 61:88%)
Apollo: 32.233m or 9.54% (before 9.38%)
Samarang: 17.040m or 5.20% (before 5.06%)

The latest status with WB:

Total warrant: 27.297m
Scientex: 3.163m or 11.59% (before 4.25%)
Apollo: 4.894m or 17.93% (before 9.37%)
Samarang: 1.608m or 5.89% (before 5.89%)

As defense against Scientex’s privatization, the warrants can be converted. Assume all warrants are converted to mother shares, the latest status is:

Total share + warrant: 354.669m
Scientex: 220.709m or 62.23% (before 57.45%)
Apollo: 36.127m or 10.19% (before 9.38%)
Samarang: 18.648m or 5.26% (before 5.12%)

Scientex is far from reaching 75%, let alone the 90% necessary to secure its privatization.


If Scientex is unwilling or unable to come up with a fair offer, and let the offer lapses, share price is likely to go under RM2.70. A small risk where short term investors need to consider.

The price is likely to settle higher than the RM2.3-RM2.4 pre-announcement level given Daibochi’s hidden value gets wider recognition now.

However, any attempt by Scientex and/or other players to buy on bargain, even for a small quantity, will lift the share price again.

As a long term investor, this is actually my preferred scenario rather than cashing out even at a revised but still inadequate offer.

@dragon328,
Thanks for your response on the forward PE.

<Let me share below early message in response to some unnecessary comments which were retracted but reappeared now after edit. >

A few words on the ongoing distractions.

Even though @anti_colonialists doesn’t confirm any strong tie to Scientex, IMO by calling other evil and liar is actually doing a disservice to Scientex which he seems to defend passionately.

Earlier he complained he was censored, presumably by the i3 Forum people, and claimed there was a collusion. But his posts are flowing in now without problem. His earlier problems could well be due to i3 system auto function imposed on newly created user accounts. Jumping to conclusion doesn’t serve his cause, whatever it might be.

I’m also intrigued by his remarks that “I agree more with @iknownuts, it considers risk management, instead of your posts that feel more bias to best scenario projection and application of fairness which is flimsy and subjective. Discuss our reasoning in next posts? Much later.”

Note that “our” is a peculiar choice of word.

I actually feel sorry for Scientex. Even though he may just be a passionate volunteer “observer”, the method used is clearly counterproductive.

Those remarks are mere distractions from the main topic here, which is to analyze the Scientex offer and how minority investors could respond. As I said many times, the best defense for Scientex is to present an alternative valuation case to justify the RM2.70 offer.

A more persuasive argument should start from the viewpoint of Daibochi minority shareholders’ interest, not Scientex!

@auditorandconsultant
Can you share your source of intrinsic value calculation?

I looked up a few broker reports. They value the GI business based on book value. The multiple ranges from 1.2X to 1.6X. The book value estimate varies greatly from FY19A RM2.1b to FY22F RM3b. However I’m skeptical that book value can grow >40% in 3 years. At least one of them must be very wrong.

For the life business, the embedded value (EV) is estimated to be RM2.6b (as of Jun20) to RM3.3b (as of Jun21). Again the difference is rather big. Most apply a multiplier of 1.0X which makes sense. But not sure how they get the actuarial estimation. But none assign any value to the NBV growth which should bring in value too.

Allianz doesn’t disclose its own EV estimation. I also don’t know how to work out its GI book value based on its quarterly or annual report info. Appreciate if anyone can share their estimation approach.

The said BNM report
https://www.bnm.gov.my/documents/20124/4782528/fsr2021h1_en_wb4_medical.pdf

BNM publishes a report on Impact of Medical Re-pricing Deferrals on Life Insurers and Family Takaful Operators.

My takeaways after reading:

• Between 2015-19, the combined ratios of Life and Takaful Operators (ITOs) is broadly within 90%-100%.
• The combined ratio declined in 2020 as policyholders delay non-critical medical treatment. But the average cost per treatment was up 14%-15%, higher than long term trend of 8%-9%. The higher cost mainly due to pandemic-related protocols may persist in the future.
• However, as movement control is lifted, the number of claims is expected to normalize, or may temporarily exceed past level.
• Most ITOs agreed to defer re-pricing to preserve affordability. Their margin could be squeezed.

Insurers are under pressure not to reprice given policyholders are still suffering from the economic fallouts. It may impact different ITOs differently. For example, ITOs that rely more on credit products like STMB face a lesser impact than Allianz, who in turn fare better than pure life insurers?

I don’t have the details and am not capable to judge the magnitude. Just throw up a thought for others to comment.

@dragon328,

You've brought up a valid point that Daibochi mean PE may be lower than the past 10 year mean at 18.6X given it was a higher growth company in the past.

I checked out the forward PE of last 5 years using Bursa Alpha Indicator Report. It was based on Refinitiv data. You can find in page 7 of the report in the link below. The past 5 year average forward PE is even higher at 20.5X (it shows average instead of mean). The average forward PE was only dragged down in the last two pandemic years, a temporary situation.

https://www.bursamarketplace.com/mkt/tools/research/ch=research&pg=research&ac=1517729&bb=1540820

Applying the 5 year average PE approach
(1) pre-announcement consensus FY22E EPS = RM0.201
(2) Fair value per share = RM0.201 x 20.5 or about RM4.1

Even apply a 20% margin of safety it still yields RM3.3

Why did the forward PE stay above 20X, even up to 27X for most of the 2017 to 19 period? I believe one of the reasons is during that period the market has rerated branded consumer companies like Calrsberg, Heineken and Nestle. The forward PE of Nestle was raised from 30+ times to an eye watering 50X times. As an indispensable business partner to Nestle and the like, Daibochi should benefit.

Yes, I forgot to mention on Diabochi’s unique position with its MNC clientele that include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. Once the products are selling well, these MNC clients do not easily change their packaging which risk affecting product appeals to their consumers, either due to shift in packaging color tones, or degradation in permeability that may affect food quality.

This is the business moat or competitive advantage of Daibochi. as compare to other commoditized flexible plastic packaging companies.

Besides, with its recent inroads into the mono-material laminate structure in collaboration with its MNC client, Daibochi is helping MNCs to develop a sustainable packaging solution to address the growing ESG concerns.

This potential ESG play is another potential catalyst for future rerating. Any acquirer should pay a premium rather than below mean valuation to privatize this company.

@Investmon,
Scientex business consists of property, upstream stretchable film (volume commodity business) and downstream converters like Daibochi.

They have different characteristics and different valuation. PE is not even a good method to value property business, where discounted RNAV is a better tool. Therefore I believe PE valuation of both firms are not comparable.

As I’m not familiar with Scientex, I’ll refrain from commenting on its valuation. It is better to post that question in Scientex forum for the benefits of all Scientex investors.

@iknownuts,
Thanks for clarifying your position.

I see that we agree that
(1) privatization will fail
(2) delisting, if ever happen, will take a long time

You also seem to agree with me that intrinsic value of Diadochi is higher than RM2.70, but you believe “the most important factor is PRICE”

As a long term investor, I’ve never shunned low liquidity stock as I don’t buy and sell in tens of thousands let alone millions of shares.

As a long term value investor, I believe in fundamentals rather than the Mr. Market. If the company fundamentals continue to be strong and management performs, earnings will grow. As earning grows share price will follow.

But I’ve mentioned before, taking profit now is also a viable option. It all depends on individual investor’s risk profile, holding period, and understanding and conviction on Daibochi’s long term prospect.

BTW congratulate for realizing your profit.

Now a discourse. For pessimists who believe future earning will be just the same as the past two pandemic years, and that the RM100m capacity installed is simply a waste, they can assume future EPS at RM0.145 (i.e. average of past 2 years).

The same valuation method produces 18.6 x RM0.145 = RM2.69.

Applying these worst case scenario give you the Scientex's offer price!

If those in charge truly believe in this worst case scenario, they should have stopped the RM100m capacity expansion long ago.

I welcome anyone to criticize the above workings. Better still come forward with an alternative valuation case showing why RM2.70 is fair despite me showing otherwise.

As a sanity check, I'll use an alternative approach to estimate future earnings without relying on analysts' consensus forecasted net profit.

In the latest FY2020 annual report, Daibochi's Chairman wrote that "capital expenditure of RM100.0 million over a two-year period from FY 2020-FY 2021 to expand our manufacturing capacity by approximately 60%."

FY20 and FY21 EPS were RM0.146 and RM0.144 respectively. Take the average which is RM0.145.

Assume net profit scales linearly with the 60% capacity expansion. When the newly installed capacity has been taken up, future EPS could reach RM0.145 x 160% = RM0.231.

Applying 10 year mean forward PE of 18.6X, the value could reach 18.6 x RM0.231 = RM4.30, perhaps realized within next 2 years of so (unless you believe Daibochi's management has made the mistake of putting in so much capacity which they cannot use for a long time, and leave the assets depreciating).

Meanwhile I want to return to the valuation. This is what have brought me to Daibochi forum in the first place.

I've earlier put forward my own valuation case based on a simple 10 year historical forward PE. Some analysts have used this approach to value Daibochi. Forward earning helps to look past the recent pandemic impacts.

(1) Just before the offer announcement, before analysts' forecast have been affected by the offer, the Bloomberg consensus FY22E net profit is RM65.7m (source: Kenanga)
(2) The share base is 327.372m. FY22E EPS = RM65.7m/ 327.372m = RM0.201 per share.
(3) 10 year mean PE is 18.6X (source: CIMB)
(4) Fair market per share = RM0.201 x 18.6 = RM3.73

The estimated fair value at RM3.73 is much higher than RM2.70.

Granted valuation is an inexact exercise. But even with margin of safety applied, it's still much higher than RM2.70.

Besides acquirer should pay for premium rather than mean valuation.

@anti_colonilists,

You've not answered my simple question just by repeating that you're an observer. Please decide if you're an observer with, or without, a strong tie to Scientext.

There shouldn't be concern about privacy. I'm not asking whether you're a board member of Scientex. What I've asked many times is whether you have a strong tie in the sense of being a current or past management/ employee/ vendor/ contractor.

A minimum level of transparency helps us to understand whom we're talking to. I've declared my interest, so are others.

@iknownuts, you're back?

No, I don't hate anyone or any company. Hate is the biggest enemy to investment success.

I recalled your first comments here. You advised not to go against the big bro less get stuck in a counter not meeting market spread requirement. Instead can swap Daibochi with Scientex. But now cheering the price up?

No offense here. Just wonder if you've changed your position?

@anti_colonialists4,

Instead of entertaining your latest accusations which are taken out of context, let me repeat my two questions to you.

"Do you have a strong tie with Scientex currently or in the past, like as an employee/ management/ contractor/ vendor, rather than just a casual link such as a retail investor of Scientex? Note this is a question, not an assertion or accusation. I also mean no offense. It just helps me to understand better whom I'm talking to."

"I've repeatedly asked you to show your valuation. We can compare notes. It will be for the benefit of everyone instead of more emotions"

Can we settle these two points first?

@the new user/ users who claimed to have been censored,

I've never claimed that Scientex manipulate user accounts. But I notice you're very sensitive when I highlighted the FACT that were many new user accounts joining this discussion. Why jumping to the conclusion that I'm accusing Scientex manipulating account? Have I said that you represent Scientex?

But now I'm curious. Do you have a strong tie with Scientex currently or in the past, like as an employee/ management/ contractor/ vendor, rather than just a casual link such as a retail investor of Scientex? Note this is a question, not an assertion or accusation. I also mean no offense. It just helps me to understand better whom I'm talking to. (And in case you've missed out, I've repeatedly disclosed myself as a retail investor of Daibochi and responsible for my and only myself)

I've outlined my valuation for Daibochi more than two weeks ago in prior comments. Using historical forward PE valuation I've shown the offer price has grossly undervalued Daibochi.

I've repeatedly asked you to show your valuation. We can compare notes. It will be for the benefit of everyone instead of more emotions.

But please don't give advices like don't fight the taiko or don't fight the giant as @iknownuts and @Investor420 have already done. Frankly, at the rate it's going, Scientex cannot hit 75% shares let alone 90% within this offer period without altering its offer.

I look forward to more level headed discussion.

@Collusion, I notice your post above stayed in the forum for over an hour. I also notice it was dated 01/10/2021 12:04 AM

Presumably you've created your account the day before and your current post is considered the next day posting. Let's see if it stays.

@Collusion aka @Censorship aka @Anti_***,

Sorry to hear that your posts keep disappearing. You've implied someone exercising the i3 system administrator power to silence you.

That's your words. Readers like me have no way to tell whether it's true. I don't have such power nor connection. Whatever "collusion" that you may have imagined on my part can all be read in my prior comments. They are open for all to read!

Frequent i3 users also know how a post that has been deleted by system administrator looks like. The post does not disappear out of the thin air, just like when it's deleted by the user himself. Instead only the content is removed by the system administrator, marked with the message "Post removed." I don't see such sign in earlier comments. Check out other part of this forum you'll know what I mean.

Alternatively, it's possible that websites may have created safeguard measures that prevent newly created user accounts like yours from posting long messages right after account creation. I know certain websites have such control in place to prevent spamming. I suggest you write to the website support people to clarify.

Anyway, instead of getting distracted by your comments being removed, I look forward to your opinion and analysis in support of Scientex's offer.

@cbkia4896, yes, I just checked the transaction volume. 1,262,500 shares changed hands at RM2.71 or even RM2.72, bought by parties other than Scientex given that Scientex is barred from bidding above its own offer price of RM2.70. Today transaction volume is larger than the past three days combined. Scientex acquired zero share today.

Not sure if any of the substantial shareholders were involved. If they did they would have to disclose their position soon. There could be other funds or deep pocketed parties.

However, this may or may not be the sign that Scientex will update its offer price anytime soon. It could be just speculative buying as other market participants see that this privatization exercise is failing.

Even though I myself have topped up since the first day of the offer period (I've disclosed that in my comment earlier), my opinion is anyone without sufficient understanding and conviction on Daibochi's long term prospect may want to stay at the sideline. Who know how long the process could take and whether Scientex may announce no revision in offer price, at least for time being, so as to encourage short term holders to sell out.

Just now I read a comment from from yet another newly registered new user Censorship, claiming that his earlier user account anti_*** has been deleted. He accused manipulation of to suppress pro-Scientex view.
https://klse.i3investor.com/servlets/cube/post/censorship.jsp

Just when I got the time to reply, he has deleted his own comment.

This is my opinion. The arguments from both sides, whether in favor of the offeror (Scientex) or the aggrieved minority shareholders, should be most welcome as long as no abusive language is used. But there is no need to keep creating new user accounts for that purpose (Otherwise accounts could have been blocked for that reason, if they are indeed blocked).

Just disclose your interest for the benefits of all. Argue for all you can with numbers and reasons. Perhaps even come up with a valuation exercise to show that the offeror's price is fair. The healthy debate will benefit all, including myself.

No one should be paranoid about comments in this little forum could move the market! The market is more rational than a small group of retail investors. Even many of these so called billis are capable to think for themselves!

Wow. Another newly registered i3 forum user joining the discussion. Daibochi is getting popular. Welcome!

Note a big part of Daibochi's growth has come from the acquisition of Mega in 2019. Mega's earnings were immediately accreted to Daibochi's. This was the one off jump in revenue and earnings that was largely responsible for the recent growth story. Growth has mostly plateaued in the past 8 or 9 quarters since Mega's acquisition (partly due to the pandemic situation).

Still my compliment to the management and board then for the right acquisition decision and subsequent integration efforts. They have also embarked on major capacity expansion that should pay off in the next few years.

However, as in any major acquisition and expansion, it involves operational and financial risks. So the point is, after getting minority shareholders to share the risks, and now as the integration seems to be working out and risk receding, just when the capacity expansion is going to deliver results, the minorities are asked to get lost?

Do you mean the minorities should thank for a job well done by selling off their shares at an unfair price under the threat of delisting?

Don't the management and board members get paid for doing their jobs? Are they doing their jobs so well that those "ungrateful" shareholders should surrender their shares?

And now this is called a "bail-out"? Who has asked for the "bail-out" in the first place?

Just for disclosure again. While I'm a so called stubborn billis, rest assure I'm no mole of Apollo :)
You may check out my comment history. I'm passionate on many subjects, especially on the subject of fairness!

I read past comments to tailor my replies

Haha, have to ask Lim Peng Jin. Nobody knows. But long term investors wouldn't be bothered. How's your JAG?

@dragon328, the CIMB analyst has covered himself with the statement "a higher offer price from Scientex is an upside risk". So he will never go wrong :)

I just read the CGS CIMB report, written by the analyst who has abruptly changed his position after Scientex's offer on 9/13. To recap:

6/23: TP RM3.83 based on 18.6X CY22F P/E
9/13: TP RM2.75 after cutting FY7/22-23F EPS by 21-34%
9/23: TP RM2.70 based on Scientex's offer price.

Now the TP trajectory is complete.

The title of today report is "short of expectations". But further down it wrote "FY7/21 core net profit was 6% short of our full-year estimate". Usually analysts will consider results within +/- 10% of their forecast as within expectations. This is another example of conclusion driving the headline.

Supporting Scientex's offer, the report has added warning that "Even if Scientex does not manage to attain 90% of Daibochi’s shares, the former will not look to comply with Bursa Malaysia’s public shareholding spread, and investors could be stuck with illiquid shares"
(Note: Low liquidity concerns are more for the institution clients. Typical retail investors don't hold millions of shares and therefore can get in/ out without moving the share price)

But the analyst failed to notice that after two weeks of offer, until yesterday Scientex only managed to get a miserable 4.47% shares, increasing its holding from 61.88% to a mere 66.35%.

Besides, if the analyst is concerned about the low liquidity, why would he has recommend a buy call just three months ago while the public float only differ by a few percent?

@Investmon, you're welcome. I agree switching to another pure play flexible plastic packaging stock is a viable option too.

For me I feel that the short term reward of revised offer from Scinetex within the offer period (may extend to 60 days) is roughly balanced by the risk of offer lapse (price declines but still above pre-announcement level if players including Scientex buy on dip).

On balance, as I'm more focused on the longer term, I decide not to get out and in again. Besides my average holding cost is rather low. So I agree there is no standard answer as it all depends on individual's risk profile, holding period and level of conviction.

@Investmon, welcome to this discussion thread.

I'll refrain from saying anyone here has an ulterior motive. I'm just amused on why a typical Scientex shareholder will be overly concerned about the success of Daibochi's privatization. After all, as a subsidiary of Scientex, Daibochi's earnings are already rolled up to the parent's level and Scientex enjoys 2/3 of the fruit. According to Kenanga, even with 100% acquisition, the earnings accretion of this deal to Scientex is only 5%. If I were a Scientex shareholder I will rather pay more attention to issues like what does rising building material costs mean for its affordable housing segment, just for example.

Anyway for full disclosure, as you may have already guessed, I'm a Daibochi shareholder who will rather hold on for the long term unless the offer price is revised much higher to reflect Daibochi's long term growth potential. So my position is definitely biased. And I certainly hope that other minority shareholders will also reject the current offer and that my shares cannot be compulsorily acquired (compulsory acquisition is dead now anyway).

But still I welcome contrarian opinions, based on numbers and good reasonings, on why Daibochi should not be worth a lot more as I believe. A valuation exercise to show the contrary will be a good starting point. A healthy debate can help us to discover and estimate Daibochi's intrinsic value. It can be more useful than those independent advisor's exercise (TA has been appointed) that will come up with those "fair and reasonable" or "not fair but reasonable" conclusion.

Given Daibochi quarterly results today aren't so bad, and given only a miserable 193k of share (0.06% of total) changed hand after the results announcement, expect to get more advocacy for selling in the coming days!

Hope next time they will be backed with better logic.

Some valuation exercises would be good.

@Investor420,
First you argued that retail investors, your so called billis, should just sell and switch to Scientex. BTW you're not the first to argue it here.

When pointed out that your "big funds are restrained by liquidity" logic is wrong, you then argued, based on your speculation, that big funds are acting emotional. Oh I'm so sorry for their shareholders!

Then you put forward yet another argument "you don't see how great Scientex has been for the past 20 years", as if other investors don't know how to read share price charts.

Unfortunately your new logic is akin to Top Glove offering 10% higher than today market price to acquire Kossan or Supermax, arguing that Top Glove has been the greatest company for the past 20 years and therefore the smaller ones should sell.

If the great can always acquire the not so great at an undervalued price (your own words to dragon328), then Bursa will be left with just one company. The greatest one would have swallowed up all the not so great ones.

Actually the not so great Daibochi's share price has appreciated more than 1,200% over 20 years, split adjusted and dividends excluded. What Claire Barnes of Apollo in her blog, and myself too, have argued is that if Scientex is unwilling to offer a fair price, why don't it just leave Daibochi listed? We're happy with Daibochi's organic growth. Why the desperation?

Curious to see in your user profile that, as a self proclaimed Scientex investor, the i3 account has been created today. The first comments were to advise Daibochi retail investors to sell.

@Investor420, your logic is flawed.

The funds have liquidity issue to swap also means they have liquidity issue to sell Daibochi in the future if they don't take Scientex's offer now (they can easily invest the proceeds in stocks other than Scientex).

Yet the funds not only hold out, but have increased their holdings, doubling down their bets.

And now a smart alec comes here to ridicule other retail investors while getting his own logic wrong?

@dragon328, thanks for the analysis.

Yes, it's not as bad as feared given the quarter experienced many operational disruptions. I've expected earlier that they may do some impairments given this is also the last quarter of an eventful FY21. But that didn't happen. Still can't rule out in next quarter especially with the Myanmar operations.

@Syndicates, one possibility the management didn't declare dividends is not to complicate Scientex's privatization. According to Clause 4.1, any dividend within the offer period will be deducted from the offer price later. It may create unnecessary confusions and angers among shareholders who accept the offer and later find out they receive less than RM2.70.

If my guess is right, the dividend may be declared in the following quarter instead.

Claire Barnes also said "We found it very odd to read reports from brokers and press that appeared to assume this as given..."

I agree. For example, Dagang News looks silly now for not only regurgitating the hastily changed opinion from CIMB, but further portraying Scientex as a hero. What a joke.

https://dagangnews.com/scientex-grabbing-bull-its-horns-9056

As predicted last Sat, today The Edge comes out with yet another article on Daibochi. This time besides quoting the view of Scientex controlling shareholder Lim PJ, and the private investor and former investment banker Ian Yoong who last week used the pandemic year earning to reach his "12X EV/EBITDA fair value at RM2.70", The Edge also gives the space for dissenting shareholder Claire Barnes of Apollo.

Claire Barnes said "We took the view that if Scientex wishes to increase its stake at RM2.70, and the best-informed investors see good value here, it's also a buying signal for other investors who have less information ...
We agree with Scientex that the company represents excellent value at RM2.70, and hope that it will remain listed -- as per the assurance given by Scientex when it first bought the shares."

Well done for a more balanced reporting.

Scientex's ownership of Daibochi shares:
Date Holding Changes
Start 61.88%
14-Sep 64.22% 2.33%
15-Sep 64.58% 0.37%
17-Sep 65.32% 0.74%
20-Sep 65.61% 0.29%
21-Sep 65.88% 0.27%
22-Sep 66.02% 0.14%
23-Sep 66.07% 0.05%

The acquisition pace has slowed down considerably. There are few sellers now.

Meanwhile, Apollo and Samarang have slightly increased their share holdings from 5.06% to 5.10%, and 9.38% to 9.54% respectively.

But that is not the full picture. For defense, warrants can be converted to shares. Now consider the scenario where all warrants are converted. The maximum number of shares will be 327.372 million + 27.297 million = 354.669 million. Under this scenario, Scientex's ownership will be

Date Holding Changes
Start 57.45%
14-Sep 59.94% 2.49%
15-Sep 60.49% 0.55%
17-Sep 61.17% 0.68%
20-Sep 61.45% 0.28%
21-Sep 61.71% 0.25%
22-Sep 61.83% 0.13%
23-Sep 61.88% 0.04%

And Apollo's position will be

Date Holding Changes
Start 9.38%
14-Sep 9.38% 0.00%
15-Sep 9.53% 0.15%
17-Sep 9.98% 0.45%
20-Sep 10.19% 0.21%
21-Sep 10.19% 0.00%
22-Sep 10.19% 0.00%
23-Sep 10.19% 0.00%

Therefore by 20-Sep Apollo has already crossed the 10% necessary to deny Scientex's from acquiring above 90%. It has stopped buying after the date. This may have to do with the common practice where funds do not own more than 10% of shares in a company.

The buying above RM2.70 (for shares) and RM0.32 (for warrants) have come from investors other than Apollo, Samarang and Scientex.

Preying on Fear - Pirates of the Dai-bo-chi
https://www.apolloinvestment.com/F210916.htm

Couldn't put it better than Claire Barnes of Apollo!

Today filing shows that Apollo has further bought 1.6 million warrants. Its share of total warrant has increased from 9.4% to 15.3%, more than Scientex's latest control at 11.4%.

@Multibagger, thanks for pointing out.

I don't want to speculate on the intentions of analysts or even journalists. However while the report may sway some retail investors, some could have even sold already, there is zero impact on big players. The fact that long term shareholders like Apollo and Samarang have increased their positions clearly shows they have a different opinion.

I could be wrong. But I believe Scientex is a stuck with its RM2.70 offer now. Anyone familiar with the rules may correct me, but I believe an offeror cannot increase its offer price in the midst of an offer period. Otherwise it opens a can of worms since some retail investors have already sold at RM2.69/ RM0.32 based on Scientex's stated offer.

Not only that. As I recall in other failed privatizations, an offeror is not allowed to buy at a price higher than its original offer price within the next 6 months. So the soonest they can come back with a revised fair offer is 6 months later.

If my understanding above is right, anyone who plans to hold out need to be patient. This could be unfortunate not just for Daibochi shareholders and management, but also for Scientex. All just because of its original underpriced offer. If Scientex indeed believe there is further synergy to be derived from 100% ownership, its penny pinching is just going to delay that synergy for everyone involved. Not a smart move.

Nonetheless, the fact that any revised offer is at least half a year away doesn't bother me personally. Daibichi has strong fundamentals and is growing well. So I can be as patient as Apollo and Samarang :)

I also don't expect this will be the last time The Edge writes about the privatization. Look forward to reading more interesting stories in the coming weeks and months!

Former investment banker Ian Yoong said the offer, priced at 12X EV/EBITDA for financial year ending Jul 31, 2021, is fair.

The Edge does not mention Ian's basis of using 12X. However, why use financial year ending Jul 2021? Why not next year EV/EBITDA? FY2021 is the year with severe Covid disruptions, multiple lockdowns as well as Myanmar workers' strike. Does it mean the future will be like the past one year? If so many Bursa stocks can be shown to be way overvalued!

I checked up the historical EV/ EBITDA. The past 5 year average is 19.8X. Current EV/EBITDA is 15.3X. A simplistic calculation will show the value could be up to 30% higher if EV/ EBITDA reverts to 5 year average.

Today Edge Weekly edition reports on the acquisition. The article mostly repeats the lines of Scientex, and quoting Kenanga and CIMB reports as discussed before.

The cynical side of me couldn't help but notice how CIMB and Kenanga have independently arrived at their so called "fair" value through contradictory assumptions. Can't help but suspect analysts work their valuation backward from TPs they feel compelled to give.

Kenanga took the Bloomberg’s consensus (before CIMB update) 1Y forward net profit RM65.7m; worked out the consensus EPS as RM65.7m/ 327.37m = 20 sen; then slapped a 13X PE on it to get a "fair value" of RM2.60. Just 4% away from Scientex' RM2.70.

Why 13 times PE? It said industry peers' average is 15.5X. 13X because Daibochi lacks pricing power. How about the difference of 10 sen? That is the premium to gaining full control. Sound logical?

Now visit CIMB again. On Jun 23, CIMB prescribed a TP of RM3.83 based on 10 year average forward PE of 18.6X. But after Scientex's offer, CIMB slashed its next year EPS to 14.8 sen to arrive at RM2.75, but still recycling its 10 year PE logic. No surprise, the new TP 2.75 is close to Scientex too even though it's arrived from very different assumption than Kenanga.

If we apply CIMB's EPS of 14.8sen using Kenanga's 13X PE, Daibochi can be shown to worth only RM0.148 * 13 = RM1.92. Does Scientex overpay by 40%?

But if we apply Kenanga's EPS of 20 sen on CIMB's 18.6X PE, Daibochi's value is RM0.20 * 18.6 = RM3.72, 38% higher than current offer price.

What is the value of analysts?

Apollo and Samarang topped up their position to strengthen bargaining position against Scientex. Given at least 2 out of 3 of these funds have spoken out, Scientex can't get above 90% without changing its offer.

The Public series of funds may be doing the same. They have the privilege not to disclose their position since they are not substantial shareholders.

Unlike the last two days, all the shares at RM2.70 have been mopped up. Scinetex is not allowed to buy above RM2.70.

@Zackmeiser, thank you for sharing the MISC example. This is yet another case where minority shareholders could refuse to take the short end of the stick. Even giants like Petronas have to obey the listing rules which are there to protect all of shareholders.

BTW kudos to Scientex for keeping its privatization move in secrecy. It is also possible that the privatization plan has been worked out long ago (since borrowing facilities need to be arranged) but activated hastily given the temporary market weakness.

I said this because after looking at the Bursa filing. Most likely Mr. Choo Seng Hong who is the Scientex packaging COO also did not get wind of it. He has been selling down his Daibochi warrants in Jun, Jul and Aug. He could have almost doubled his gains if he were to hold on until today.

@Zackmeiser, this is my personal opinion. We just watch Scientex and the big players. We have the luxury of time to decide after they have made their move.

Based on Scientex's daily disclosure we can deduce whether the big players have sold to Scientex. Their holdings are large. Apollo >9%, Public >7% and Samarang >5%. We will know if such volume change hands. Besides Apollo and Samarang, being substantial shareholders, have to report their positions too.

Recall the offer period is 3 weeks. Scientex may extend it up to 60 days with advanced notice. You can choose to nothing now (assuming you don't want to top up). You can decide whether to sell at the end of offer period should all the big players cash out. Scientex is obliged to buy your shares at RM2.70 during this period.

For me, if ALL the big players sell and Scientex gets more than 90%, my shares will anyway be compulsorily acquired at RM2.70 as @Multibagger has pointed out. Limited downside for me.

If the big players don't sell, I will just let the offer period slips, top up further if price falls back to RM2.4 level. I then wait for Scientex's second offer at a better price.

It serves me well too if Scientex refuses to offer again. It has been my original intention to stay on with Daibochi before this acquisition announcement. I just let my holding grows.

@dragon328, reading your comments I have a feeling that Scientex "go cheap" strategy may backfire on them.

Listing rules dictate that Scientex cannot buy in the open market at price higher than the offer price. It also has to disclose its latest position. This is a handicap for Scientex.

Big boys who want to play against Scientex can simply buy at one bid higher at time of their choice while Scientex cannot. In fact that happened for the warrant on 9/14 where over 300k was bought just half a sen higher than the offer price of RM0.32.

Scientex has shown its cards by announcing for the the privatization now. Ironically, by following a "go cheap" strategy, it has reduced the downside risk for other competing parties. We will see whether this could end up being penny wise but pound foolish.

Last and current QR results will be unpredictable for many manufacturing companies either due to closure or restricted operation. Although Daibochi did not announce any closure, you may search Facebook where someone posted KKM closure notice imposed on its premise effective from Jun 19.

In July Astro Awani also reported 8 factory closure in the Ayer Keroh industrial area where Daibochi is located. Though I'm not sure whether it was one of the closed factories in July, the Ayer Keroh Kluster did hit the area hard, including at least one of its client. The cluster is like the infamous Teratai Cluster for Top Glove earlier. In fact I've suspected earlier that the recent month share price weakness could be related.

Anyway, short term investors who might be most agitated by a bad QR could have already sold out their position in the first two days of trading. With weak hands flushed out, whoever picked up as well as the big funds themselves will not let their decision be swayed by a single quarter result. The move by Scientex now has provided an important signal.

Not meeting the 75% public spread requirement is not such a big deal. As shared in my earlier comment, The Edge reported Bursa has taken a lenient stance in recent years. In fact you can find a long list of companies which routinely fail to meet the requirement, including companies of failed privatization attempts like FGV and CCB.

https://www.bursamalaysia.com/market_information/announcements/company_announcement?keyword=PUBLIC%20SHAREHOLDINGS%20SPREAD&cat=&sub_type=&company=&mkt=&alph=&sec=&subsec=&dt_ht=&dt_lt=&per_page=50&page=1

Anyway even if there is a forced delisting by Bursa, it will drag on for several years. This is more than enough time for Daibochi to show its potential and for the share price to reflect accordingly.

@dragon328, I like your analysis on the transaction volume. After reading your comments I've checked up and worked out the math to get a glimpse on what is going on.

Mother share
9/14 - total volume 8,869,800 (2.71% of total shares). Scientex acquired 7,637,100 (2.33%)
9/15 - total volume 1,903,200 (0.58% of total shares). Awaiting filing on Scientex's acqusitiion

Warrant DAIBOCI-WB
9/14 - total volume 12,816,500 (46.95% of total warrants). Scientex acquired 1,200,700 (4.40%)
9/15 - total volume 991,000 (3.63% of total warrants). Awaiting filing on Scientex's acquisition.

As volume declines in the coming days, I agree with you that Scientex couldn't acquire sufficiently large number of shares in the open market. As discussed before, it's also unlikely to get most of the funds to part their shares at RM2.70 in order to reach 90%.

On 9/14 more than 1.2 million shares have also been bought by parties other than Scientex, including by small potato like me.

The warrant market is more interesting. There are 27 million outstanding warrants. If all converted they could add another 8% to the total share base of 327 million. Before current exercise, 95.79% of the warrants were outside the hand of Scientex.

On 9/14 alone, 46.95% of the outstanding warrants have changed hands. But 42.6% were picked by by other parties while Scientex only managed to acquire 4.40%. If the new warrant owners are a united lot, they will pose a challenge to Scientex's control. If converted it will dilute Scientex's efforts to consolidate. It's a cheap way (priced at RM0.32 instead of mother share at RM2.69!) to get some bargaining power against Scientex later!

My questions are who are these people and what could their game plan be?

The warrant has a strike price RM2.50 with a conversion ratio of 1:1. Bought at RM0.32, the total cost of converting to ordinary share is only RM2.82, just a little less than 5% of the current mother share price of RM2.69. Buying up warrant instead of mother shares to bargain with Scientex is very capital efficient!

Besides the downside isn't as large as I originally thought. The warrant expires in Jun-2022. Even if Scientex doesn't play ball, as long as Daibochi can deliver good results in the coming three quarters it's not inconceivable that its share price could return back to previous height exceeding RM2.82.

However to me that's still an element of gamble (which was why I topped up mother share but not buying warrants). But it strikes me when you said it could be big funds buying up the warrants. To think about it, who could be in a better position than Apollo, Samarang and Public funds to use warrants as a cheap way to strengthen their veto power over Scinetex's privatization?

If my guess is right, given Apollo and Samarang are substantial investors, they will have to disclose their positions in the coming days. But even if there is no disclosure, it still doesn't rule out the various Public funds which are below the disclosure threshold. Of course there is also the possibilities of other groups who could have gauged the intention of these big funds.

Of course this is just my speculation. Feel free to point out if there is any flaw in my deduction.

@Multibagger, any plan to update your view on Daibochi in your blog?

:)

It's up to individual investor's choice. But if you believe it's undervalued, you can have the choice of staying for Scientex to come up with a fair offer later, or staying invested as if nothing has happened.

Of course, as @iknownuts pointed out, there is also the choice of further investing alongside Scientex by topping up at RM2.69 now. I just did that albeit in a small way. The privatization by Scientex has now cleared my remaining uncertainty of Daibochi's value. It will be nice if Scientex offer to buy my stake back at a higher price later. Else I just grow with the company.

The key is, as explained in the previous discussion, it's will be difficult for Scientex to secure 90% with a mere RM2.70 offer. Even assuming they reach 90%, Scientex is still obliged to acquire the remaining shares at RM2.70. The downside is limited for me.

It's misleading to compare Daibochi with CCB on what could happen if privatization fails. Prior to Jardine first announcement in 2020, CCB share price has been declining for years to about RM1.2. CCB is also loss making. Its prospect is bleak after losing the wholesale distributorship of Mercedes Benz vehicles. Yet even CCB could see its share price bid up to 150% higher. Despite the failed privatization, the latest price is still at RM2.2 which is more than 80% higher than 2020 price.

Now compare with Daibochi -- 15 years of non interrupted quarterly profit; CAGR of net profit at about 10% in the last 10 years; growth picking up in the last 5 years (check out annual report); and RM100 million for 60% capacity expansion in FY20-21 is about to bear fruits. With or without the privatization offer the earning prospect is as good as before. Over time share price will follow earnings.

Besides the mere RM2.70 offer has reduced whatever little downside of a failed privatization. Assuming the exercise fails, the share price probably retreats to pre-offer time of about RM2.4. This was the level Samarang topped up in Apr.

One key difference is now investors know that Scientex wants to get the whole pie for itself at RM2.70. When price drops back to RM2.4 what should a rational investor do?

Yes, Daibochi is about to enter a high growth phase.

In fact, Daibochi's acquisition of MPP in 2019 has already contributed substantially to the top and bottom lines since FY2020. The borrowings used to fund the acquisition has been rapidly paid down from newly generated cash. Daibochi has an even healthier balance sheet today than pre-acquisition time.

Furthermore, to use the words of Chairman Heng Fu Joe, "Daibochi has embarked on its major expansion programme with capital expenditure of RM100.0 million over a two-year period from FY 2020-FY 2021 to expand our manufacturing capacity by approximately 60%. This gives the Group the capability to serve our customers and capture more growth opportunities alongside the expanding businesses of our regional clientele, onboard new customers, and further enhance our operating efficiency through adoption of newer and higher-output machines."

All else being equal, that extra 60% capacity invested now is going deliver a 60% growth in revenue and earnings in the next few years.

Scientex knows that. That is the reason it has chosen a moment of temporary share price weakness to privatize the company.

Not only the price is a bargain for Scientex, but it also represents a very safe acquisition. The riskier period was when Daibochi was ironing out integration issues and digesting MPP acquisition. That period of uncertainty already passed. Just when the prospects look bright, Scientex wants minority shareholders to get off the bus.

Mmm..., director DATO TAN GUAN CHEONG disposed all his shares and has zero holding now. Not nice.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3192742