Posted by Bgt 9963 > 2021-09-14 09:16 | Report Abuse

At current price..it's almost on par with TGuan...

Posted by observatory > 2021-09-14 09:21 | Report Abuse

What could be the possible scenarios if Scientex increase its holding above 75% but below 90%?

Rule 8.02 of Chapter 8 of the Listing Requirements issued by Bursa Malaysia (“the Exchange”) stipulates that a listed company must ensure that at least 25% of its total listing of shares are in the hands of the public shareholders.

Daibochi may still apply to the Exchange for acceptance of a lower spread. So the next question is will Daibochi just simply allows itself to be delisted, which is against minority shareholders' interest but Scientex probably doesn't mind?

Any precedence?

Posted by dragon328 > 2021-09-14 09:48 | Report Abuse

Only if Scientex gets acceptance to increase its stakes in Daibochi above 90% then only Scientex can delist Daibochi, otherwise it has to maintain its listing status though holding over 75% stakes.

If scientex gets acceptance to increase its stakes in Daibochi to over 97.2% then it can compulsorily force all remaining minority shareholders of Daibochi to sell all shares to it.

Posted by Multibagger > 2021-09-14 09:52 | Report Abuse

3 possible scenarios as mentioned by CGS-CIMB in FGV case.

Following Felda’s failed attempt to take FGV private, CGS-CIMB Research expects three potential scenarios to take place.

One scenario could lead to FGV requesting Bursa Securities to accept a lower percentage public spread if it is satisfied that such a lower percentage is sufficient for a liquid market in such shares.

Bursa Malaysia requires a public shareholding spread of 25% compared to 14.01% in FGV currently.

Meanwhile, the second scenario could result in FGV requesting an extension of time to rectify the situation, the research house said.

“The third scenario is that FGV could request to withdraw its listing from the official list if it convenes a general meeting to obtain its shareholders’ approval and successfully passed the resolution which requires 75% of the total number of issued securities held by the shareholders present and voting either in person or by proxy and the number of votes cast against the resolution is not more than 10%, ” it added.

MI's 10% still crucial in third scenario.

Posted by dragon328 > 2021-09-14 10:01 | Report Abuse

Public Mutual holds 7.32% and Samarang LLP holds 5.05% in Daibochi.

These two funds are key to blocking the mandatory takeover by Scientex at such an unfair price.

Minority shareholders like us can only hope Scientex does not get acceptance of over 60m shares in Daiboci in these 21 days of offer period for Scientex to increase its stakes to 90% and delist Daibochi.

Posted by newbie128 > 2021-09-14 10:05 | Report Abuse

For 300+ million to take whole of daibochi private cost less than buying a piece of land for scientex. Definitely this favour scientex more than minority holders. I think daibochi should worth more but maybe those big minority holders would like to cash out

Posted by dragon328 > 2021-09-14 10:32 | Report Abuse

Not sure what those big holders of Daibochi will do but I am sure that this offer price is too low.

I will not sell it at 2.70 and is prepared to hold on to see the explosive earnings growth of Daibochi in coming quarters. I think this privatisation offer from Scientex will fail and Daibochi will remain listed after 21 days.

Posted by iknownuts > 2021-09-14 11:16 | Report Abuse

Daibochi has not been doing exceptionally well, until scientx came into the picture. Being owned by scientex has unlocked many of its potential, exposure and synergy. Look at daibochi’s share prices in the last 5 years, it does not seem to be going anywhere. Explosive growth has only come in the last 2 years.

Is the offer reasonable? Depends…. If you bought the share above 2.7, probably not. But if you have gotten in say at the price of 2.2 - 2.4 (which was what mr market has been pricing it for the last few years), or during the covid crash or even when those majority sellers cashing out in 2018, this is a no brainer

For those who gotten in at a higher price/do not want to sell, do u want to risk being stuck in a counter which will be even more thinly traded and high likely to not able to meet mkt spread requirement? Scientex already confirmed they are not going to maintain daibochi’s listing status.

For scientex, this acquisition makes perfect sense. Fully privatising daibochi means being able to fully concentrate on expanding the daibochi’s capacity and piggybacking on scientex’s already burgeoning reputation.

Those who think daibochi is undervalued and can progress much further, how about swapping daibochi with scientex shares. Rather than fighting the taiko who is already one foot in your door, it makes sense to be part of the taiko moving fwd

Posted by williamtkb > 2021-09-14 11:41 | Report Abuse

Tactics to push share price?

Posted by observatory > 2021-09-14 11:42 | Report Abuse

Thanks Multibagger for the useful info on FGV scenario. The third scenario mentioned by CGS-CIMB is the key. Even if Scientex increases its holding to near but below 90%, Daibochi cannot request for delisting if more than 10% of the minority shareholders are against.

Next is the guessing game of the intention of the few major minority shareholders. As shown in the shareholder list of the past annual reports, all of them have been with Daibochi longer than Scientex. None of them took up Scientex's offer in 2019.

Public Islamic Opportunities Fund first appeared as a shareholder in 2010 with 1.71%. The latest annual report shows this has grown to 7.34% under four separate Public funds.

Apollo Asia Fund Ltd first appeared with 2.47% in 2011. It has grown to 9.38%. It has never reduced its stake. From the fund website it seems to be a long term patient capital. The manager Claire Barnes lives in Malaysia. She probably understands the value of Daibochi as much as Scientex.
https://www.apolloinvestment.com/

Below was the 2019 quarterly report where she wrote about Scientex first acquisition.
https://www.apolloinvestment.com/F190107.htm

Samarang Asian Prosperity inherited the stake from Halley Sicav Asian Prosperity after a merger in 2017. The fund first appeared with 2.44% stake in 2012. Over time it has increased to above 5%. According to Bursa filing, its shareholding briefly dropped below 5% in 2020. But it added back in the RM2.4 to RM2.5 range in April this year.

Based on the past behavior of these three funds, I can conclude that they are long term shareholders. If they didn't sell in 2019, it doesn't make sense for them to sell in 2021 at an unattractive price given Daibochi's fundamentals remains healthy (else Scientex will not up its stake). Of course there could be non-investment related factors like raising cash to meet redemption or acquiring better opportunity. But given current market condition the likelihood is low.

So my conclusion is first these funds are unlikely to sell at RM2.70, and second Scientex cannot reach 90% without getting two out of three of them to sell. The threat of delisting is not easy to carry out as Multibagger has shown.

Personally not only will I not sell my shares, but I consider opportunistically to top up at RM2.69. At worst I have to sell back at current price or hold it for long term. The upside is Scientex may give a fair offer if it's really keen to acquire full control.

Posted by dragon328 > 2021-09-14 11:49 | Report Abuse

Daibochi has not been doing well even after Scientex took over in 2019. Its earnings and share price have been depressed in past few quarters though other plastic packaging companies like TGuan and BPPlas have made tonnes of profits growth. Why was that so?

It was all because Scientex had the intention to privatise Daibochi so it could not let Daibochi to report good earnings until it launched the takeover offer.

If Daibochi is not doing well, why would Scientex want to raise its stakes at RM2.70, a much higher price than its original entry price of RM1.60? Because it knows very well Daibochi will see explosive earnings growth in the next few quarters after its capex expansion plan and softening of resin costs.

Posted by observatory > 2021-09-14 12:02 | Report Abuse

Among the values of Daibochi is its stable MC client base. Its MNC clients include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. They are in the stable consumer staple industry. Daibochi has built up the base before Scientex's acquistion in 2019. Otherwise why would Scientex venture downstream in 2019 to acquire this client?

Another point is Daibochi has recently acquired Mega. This has complimented its portfolio as Mega caters to non-MNC clients.

Personally I prefer Daibochi to Scientex despite Scientex's share price growth in the past. I see the downstream converter business as the more valuable part of Scientex's portfolio.

Besides I like simple business. Investing in Scientex mean buying not just its plastic packaging but also the property business too. I would rather hold Daibochi and separately investing in a pure property play of my choice.

Posted by dragon328 > 2021-09-14 12:02 | Report Abuse

Of course, we minority shareholders of Daibochi has no financial power to fight against the taiko Scientex. What we are asking is for a higher offer price that will reflect the fair value of a great company at the edge of explosive earnings growth.

Scientex already made many minority shareholders of Daibochi suffer like hell in 2019 when it offerred a pathetic RM1.60 to take over Daibochi which was trading at RM2.30-2.50.

Now at least the offer price of RM2.70 is above the average market price in past weeks but is too low for minority shareholders who have been holding daibochi waiting to see the benefits of growing earnings in next 2 years.

Sell Daibochi and buy Scientex?? Easy way out? Hello, Scientex is trading at PER of over 15x and derives half of earnings from property development. Scientex earnings growth for next 2 years will be no way near that of Daibochi. Furthermore, Scientex share price has gone up over 80% since 2019.

There is no sincerity in this take over offer from Scientex. So petty, only good at playing tricks to depress minority shareholders, e.g. getting CIMB analyst to immediately revise target price from RM3.85 to 2.75, loading more costs to the upcoming quarterly result of Daibochi, etc.

Posted by iknownuts > 2021-09-14 12:16 | Report Abuse

There is no way the 3 major funds will accept the offer in 2019. The shares were trading at rm2 then (before announcement) and the offer was at rm1.6.

Also rm1.6 was a negotiated deal as the existing majority wished to cash out. There is no way they can unload their enbloc shares at a premium. So those other shareholders suffered bcos of the cashing out shareholders selling at 1.6 and scientex needed to subsequently do a MGO. To compare why the offer is now 2.7 vs 1.6 then is not fair

Anyway, we shall see in the coming weeks how these funds will react

Posted by bojed > 2021-09-14 12:19 | Report Abuse

Sold all at 0.32.

---------------------------------------------------------------------------

bojed I bought WB at 0.13 last month yeeeehaaaaa!!!
13/09/2021 3:57 PM

Posted by dragon328 > 2021-09-14 12:23 | Report Abuse

These are exactly the attributes that make Daibochi attractive. Its long term and stable MNC client base is much much valuable than selling just commoditiy-like stretchable films and affordable housing.


Posted by observatory > Sep 14, 2021 12:02 PM | Report Abuse

Among the values of Daibochi is its stable MC client base. Its MNC clients include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. They are in the stable consumer staple industry. Daibochi has built up the base before Scientex's acquistion in 2019. Otherwise why would Scientex venture downstream in 2019 to acquire this client?

Another point is Daibochi has recently acquired Mega. This has complimented its portfolio as Mega caters to non-MNC clients.

Personally I prefer Daibochi to Scientex despite Scientex's share price growth in the past. I see the downstream converter business as the more valuable part of Scientex's portfolio.

Besides I like simple business. Investing in Scientex mean buying not just its plastic packaging but also the property business too. I would rather hold Daibochi and separately investing in a pure property play of my choice.

Posted by gemfinder > 2021-09-14 12:50 | Report Abuse

sold 269. take back money

Posted by observatory > 2021-09-14 14:27 | Report Abuse

I just read the latest CGS-CIMB report today. In the previous report dated Jun 23, the analyst Kamarul Anwar assigned a TP RM3.83 based on 10 year average PE of 18.6X for CY22.

In his report today the TP has been miraculously adjusted to RM2.75, just 5 sen above Scientex's offer price of RM2.70. The valuation basis is still based on 18.6X for CY22. But projected EPS has been adjusted downward by citing various reasons like shipping constraints, rising raw material cost.

Didn't he notice the same condition exist when writing his previous report less than 3 months ago? Besides these problems are not firm specific. They affect all players including Scientex. Besides these are likely to be temporary challenges.

He also cited Scientex's rationale of taking Daibochi private to “meet the stringent requirements of multinationals and local prominent brands, who are increasingly reliant on suppliers that are equipped with good risk management and business contingency plans with the capacity and capability to provide reliable, dependable, and quality products on a consistent basis.”

Therefore he opined that there will be a lot of adjustments needed in Daibochi’s cost structures and business practices to comply with its end-clients' needs, like investing in risk-mitigation factors for its facilities.

But has Daibochi financial health deteriorated drastically since previous report published in Jun 23? Let's look at balance sheet and cash flows over the past 5 years.

For period ending in Dec 17, Dec 18, Jul 19 (new financial year), Jul 20 and Apr 21 (latest quarter reported), Daibochi's gross debt to GDP ratio are 31.5%, 31.7%, 27.2%, 28.2% and 21.0%. It has actually trended lower!

Including cash, the net debt to GDP ratio is even lower at 23.2%, 26.9%, 19.1%, 17.9% and 14.3%. Trended lower again.

The average monthly net cash flow from operating activities during these periods are RM2.4m, RM1.5m, RM4.0m, RM10.0m and RM5.6m. Cash from operation has been growing fast.

In short Daibochi has a healthy balance sheet and is getting better.

In contrast, looking at Scientex's latest balance sheet as of Apr 21, Scientex's gross and net gearing are 33.9% and 30.1% respectively. The gearing is in fact higher than Daibochi. So I'm puzzled by the rationale used in CGS-CIMB report today to cut its EPS projection.

Or more likely has the Scientex's offer price influenced the analyst's TP? The disclaimer can be found in the last sentence "Scientex raising its takeover offer prices could re-rate the stock"

After these studies, not only that I'm clear that I won't sell, I just placed an order to top up at RM2.69 based on reasons mentioned in previous comment.

Posted by dragon328 > 2021-09-14 16:08 | Report Abuse

This clearly shows that this CIMB analyst has no integrity and firm conviction on his own analysis, easily influenced by the latest offer by Scientex.

He lowered revenue projections for Daibochi by 5%/0.5% for FY2022/2023 but very conveniently reduced projected net profit by a much larger 34%/21% for FY2022/2023 in order to arrive at a tp of 2.75 close enough to the offer price by Scientex.

The reason cited for lower earnings projections was higher overheads during the business adjustment processes. I doubt he had much idea of what he himself wrote about on the so called business adjustment processes, like "investing in risk mitigation factors for its facilities". What the fak!

I think CIMB Research team really needs to strengthen the governance of its equity research analysts to prevent another Marcus Chan (the CIMB analyst who covered Hevea and got fired for producing biased reports) from misleading retail investors for self interests.

Posted by dragon328 > 2021-09-14 16:42 | Report Abuse

I do not understand why he believed "there will be a lot of adjustments needed in Daibochi's cost structures and business practices to comply with its end clients' needs".

This is not the first time Daibochi is doing business with big MNC or local prominent brands. Why suddenly is there a need to adjust so many things in Daibochi's cost structures or business practices?

Is it due to the entry of Scientex as the major shareholder of Daibochi that requires so many changes in Daibochi's operations?

And I do not understand why suddenly the EBITDA margin of Daibochi would drop from over 15% in FY2021 to just 11% for FY2022 in his latest projections. Wasn't it Scientex who said that "taking Daibochi would also put it in a better position to meet the stringent requirements of multinationals and local prominent brands..."? Why would taking it private then destruct its EBITDA margin?

Posted by Bgt 9963 > 2021-09-14 16:57 | Report Abuse

Going private....

Posted by observatory > 2021-09-14 17:42 | Report Abuse

@dragon328, analysts have many considerations.

For example, if he keeps the TP at RM3.83, he may be concerned that it looks contradictory when advising clients to take up the offer at RM2.70. So may be it's safer to set a lower TP first. Words like business adjustment processes, which nobody can understand what it means, can be used to justify the new TP.

For me a better way to handle this is to work out the TP based on true business fundamentals. Later on if the analyst wants to urge his clients to take up the offer, he could argue for it based on another set of reasons like liquidity issue or delisting lists. This way will be far more transparent.

But what is important is, based on pre-announcement consensus, the offer price represents a FY22 forward PE of about 14 times, as compared to past 5 year average of 20.5X and 10 year average of 18.6X.

Shareholders will have to judge for themselves
1. Is 14X forward PE a good enough offer?
2. Among Apollo, Samarang and Public, how likely will at least two of them also agree that the offer is good enough, and thereby parting their shares to clear the way for Scientex to acquire above 90%?
3. Even if 2 of the 3 funds above sell out, how likely will some other deep pocket investors/ institutions increase their stake to stop Scientex from reaching 90% without offering a higher price later?

Posted by Multibagger > 2021-09-14 20:47 | Report Abuse

https://www.thestar.com.my/business/business-news/2014/08/23/dr-yu-im-a-longterm-investor-in-hlcap

Posted by Multibagger > 2021-09-14 20:48 | Report Abuse

Yes, deep pocket investor could make the difference.

Posted by Juliana > 2021-09-14 21:42 | Report Abuse

Whaaa

Posted by observatory > 2021-09-14 21:59 | Report Abuse

@Multibagger, thanks agin for sharing the story of HLCAP before it was delisted (and now relisted).

There are a few lessons I draw from your article.
1. Dr Yu is a long term investor who is willing to get locked up in a good company. I think his patience is more important than his deep pocket.

2. The invested company must have good business fundamentals. In this case HLCAP which is into investment banking, fund management and stockbroking generate synergy with other parts of the Hong Leong empire. Similarly Daibochi is a good business which is synergetic with Scientex.

3. The return for holding out for the right investment can be substantial. The share traded at RM1.2 before Quek offered to take private at RM1.71. The holdout pushed the price up to as high as RM14.5. Even those who got locked after the delisting in 2015 could escape at above RM8 when it was relisted in 2020, which was 4 times higher than the offer price.

4. Most importantly, it took more than 2 years from late 2013 to early 2015 before HLCAP was eventually delisted. Applying the same lesson here, there could be many opportunity to escape for speculators and investors alike. For Daibochi today is just Day 1!

Posted by observatory > 2021-09-14 22:12 | Report Abuse

I have also checked out on how public spread is defined. Under normal circumstances, the condition is 25% public spread and 1,000 public shareholders. As of 19 Oct 2020 Daibochi had 2,609 shareholders.

Public shareholders are defined as investors with less than 5% shareholding. While funds under Public Mutual are not designated as substantial shareholder (its holding spread across multiple funds), Apollo Asia Fund Ltd. and Samarang Asian Prosperity each holds above 5%.

But the shareholding of institutions, also regarded as a “collective” investment scheme, can be regarded as part of the public float. Therefore I believe Apollo's and Samarang's holdings are considered as part of the public float.

More importantly, as the article below explains, Bursa Malaysia has been taking a more relaxed approach on public spread. Rightly so since the number of public listed companies in Bursa has been stagnant in recent years.

https://www.theedgemarkets.com/article/more-flexibility-public-spread-listed-companies

Posted by dragon328 > 2021-09-15 00:24 | Report Abuse

An analyst may have many considerations, self interests is one, priviledged cliets' demand is another. He was the only equity analyst covering this stock (maybe another one from MIDF but I have not seen any update from MIDF yet) and should have been well aware of the sensitivitiy of his revised target price.

He raised the tp for Daibochi by 52% from RM2.66 to RM4.04 on 18 Sept 2020 "due to its rousing growth potential after its capacity expansion". After Daibochi reported a weak Q3 result on 23 June 2021, he then lowered the tp by only 5% to RM3.83, admitting that he should have been aware that workers' strike in Mymnmar would be a drag on its sales. What has since changed on Daibochi fundamentals that makes him cutting tp by 28% to RM2.75? Just because Scientex made a low priced offer, he has to throw away all his own assumptions and projections to get inline with the offer or what markets perceive it to be? What kind of professionalism is that?




Posted by observatory > Sep 14, 2021 5:42 PM | Report Abuse

@dragon328, analysts have many considerations.

For example, if he keeps the TP at RM3.83, he may be concerned that it looks contradictory when advising clients to take up the offer at RM2.70. So may be it's safer to set a lower TP first. Words like business adjustment processes, which nobody can understand what it means, can be used to justify the new TP.

For me a better way to handle this is to work out the TP based on true business fundamentals. Later on if the analyst wants to urge his clients to take up the offer, he could argue for it based on another set of reasons like liquidity issue or delisting lists. This way will be far more transparent.

But what is important is, based on pre-announcement consensus, the offer price represents a FY22 forward PE of about 14 times, as compared to past 5 year average of 20.5X and 10 year average of 18.6X.

Shareholders will have to judge for themselves
1. Is 14X forward PE a good enough offer?
2. Among Apollo, Samarang and Public, how likely will at least two of them also agree that the offer is good enough, and thereby parting their shares to clear the way for Scientex to acquire above 90%?
3. Even if 2 of the 3 funds above sell out, how likely will some other deep pocket investors/ institutions increase their stake to stop Scientex from reaching 90% without offering a higher price later?

Posted by dragon328 > 2021-09-15 01:11 | Report Abuse

Lets forget about the rubbish analyst report and focus on fundamentals of Daibochi vs the offer price.

I pay more attention to its operational cash flows rather than accounting profits as I believe it is a better measure of how strong a company will be able to pay out dividends that ultimately determine how high the share price may be.

From Daibochi 2021 Q3 quarterly report, it reported an operating cash flow of RM66.83m before working capital changes, and free cash flows of RM62m after tax and interest payments (before capex). Annualising it will give us RM83m of free cash flows.

Given that it had spent capex of RM46m as of 30 April 2021, its expansion plan may well be on schedule for completion by Q4 ended July 2021. Assuming that Daibochi management will be able to secure new orders for 80% of its new capacity within two years, I project that free cash flows would grow up by 50% to RM124m by FY2023. That would be almost 38 sen of free cash flows a year.

Accounting profit will be much lower due to depreciation and amortisation line which will be over RM30m and accounting tax line which will be over RM20m. Therefore dividends will be restrained by net profit of the year or about 23-25 sen per share.

As Daibochi serves mostly MNCs and local prominent F&B brands, it would be justifiable to peg it to dividend yields of consumer food giants like Nestle which has a 10-year mean yield of 3.1%. That would value Daibochi at 0.23/3.1% = RM7.42 !!

One would then argue that Daibochi is much smaller than Nestle and more volatile in revenue or earnings. I would like to peg it to the highest yield given by any REIT listed in Bursa, which is around 7.0%. That would still value Daibochi at 0.23/7.0% = RM3.29.

Even its parent Scientex only gives out a low dividend yield of 2% only, Thong Guan at 2.5%. Daibochi at RM2.70 would yield close to 9%. Where else could you find such a bargain?

In DKSH but it has limit up after a sterling qtrly result. In YTLREIT but need to wait for hotels to return back to normal business. In Astro which is losing subscribers every year still.

Only in Daibochi now which is about to take off well from its well planned expansion. Scientex knows it better than any of us here.

Posted by mf > 2021-09-15 02:38 | Report Abuse

Dow Jones 34,557.527 -312.10 0.90%
Nasdaq 15,039.81 -65.772 0.44%

Posted by observatory > 2021-09-15 22:21 | Report Abuse

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.

Posted by vcpmaster123 > 2021-09-16 09:26 | Report Abuse

No doubt daibochi is undervalued at this juncture..but there is not much we can do other than sell..

Posted by iknownuts > 2021-09-16 10:32 | Report Abuse

U dont have to sell if u feel u can fight/beat the big bro. In fact can buy more too.

But if the big bro dont want to play ball with you, you may end up like CCB (see price now), or even worse like yee lee later.

Posted by observatory > 2021-09-16 11:45 | Report Abuse

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?

Posted by observatory > 2021-09-16 11:53 | Report Abuse

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

:)

Posted by dragon328 > 2021-09-16 12:18 | Report Abuse

What you can do is to hold on to your Daibochi shares and not to sell it to Scientex at RM2.69 at open market. Scientex has managed to collect over 7 million shares of Daibochi mother shares on Day 1 of privatisation offer and less than 1 million on Day 2. It will be a long long way before Scientex can collect 60 million to cross 90% stakes for delisting.

I am confident Scientex will not succeed in this privatisation effort at RM2.70 offer price. It will have to raise it to over RM3.00 later on if it is not able to collect enough from the open market and acceptance from retail investors. I do not expect the funds holding Daibochi will accept the offer at 2.70.

It is understandable for Scientex to make the first offer at a low price so that it can collect as much as possible at 2.69-2.70 in the open market during this 21 day offer period, knowing very well that the offer price is too low and will not gather much acceptance. It is in fact very smart of Scientex to make this offer with every 1% extra shares gathered at 2.69-2.70 saving at least RM1.0 million of privatisation costs.

I reckon that Scientex will need to raise the offer price to RM3.30 for Daibochi mother share and RM0.90 for Daibochi-WB for funds and more retail investors to bite.

It has about 62% stakes of Daibochi before the offer and has gathered close to 8 million shares in first 2 days of privatisation offer. I estimate that Scientex may be able to get some 15-20 million shares from the open market during the 21 day offer period, which will bring its stakes to 68-70%.

To get another 20% stakes or 66 million shares, Scientex would just need to spend extra RM39 million to raise the offer price to RM3.30 and complete this exercise in 2 weeks. Scientex would get this money back from this extra 28% stakes of Daibochi in few months just from the strong operating cash flows of the latter. What for to drag it months or years with low liquidity and non-compliance of listing requirements?

Just be a bit more generous in the offer price and it will save a lot of time and distress, also gaining trust and applaud from Daibochi's management and shareholders as well as Scientex's own public shareholders (for fast and determined corporate exercise by Scientex and not dragging things for months/years on petty valuation issues).

Posted by dragon328 > 2021-09-16 12:22 | Report Abuse

Glad to see TA Securities appointed as independent advisor by Daibochi for this privatisation offer, and not CIMB Securities who happens to have this analyst with weak conviction and no confidence in what himself was writing before the offer.


Posted by dragon328 > Sep 15, 2021 12:24 AM | Report Abuse X

An analyst may have many considerations, self interests is one, priviledged cliets' demand is another. He was the only equity analyst covering this stock (maybe another one from MIDF but I have not seen any update from MIDF yet) and should have been well aware of the sensitivitiy of his revised target price.

He raised the tp for Daibochi by 52% from RM2.66 to RM4.04 on 18 Sept 2020 "due to its rousing growth potential after its capacity expansion". After Daibochi reported a weak Q3 result on 23 June 2021, he then lowered the tp by only 5% to RM3.83, admitting that he should have been aware that workers' strike in Mymnmar would be a drag on its sales. What has since changed on Daibochi fundamentals that makes him cutting tp by 28% to RM2.75? Just because Scientex made a low priced offer, he has to throw away all his own assumptions and projections to get inline with the offer or what markets perceive it to be? What kind of professionalism is that?

Posted by dragon328 > 2021-09-16 12:37 | Report Abuse

Well said, observatory.

Everyday in the past few days, there were over 10m shares of buy orders for Daibochi at 2.68-2.69 and over 60m shares of buy orders for Daibochi-WB at 0.310-0.315. This clearly shows that more funds and big players are trying to grab shares of Daibochi and wb other than Scientex. Scientex will need to eat up shares beyond RM2.70 and wb beyond RM0.32 in order to gather more shares or raise the offer price later to succeed in this privatisation effort.


Posted by observatory > Sep 16, 2021 11:45 AM | Report Abuse

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?

Posted by observatory > 2021-09-16 13:51 | Report Abuse

@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.

Posted by Multibagger > 2021-09-16 14:04 | Report Abuse

@Observatory, I see both yourself and Dragon328 have been providing valuable comments and perspective in this forum, which has served the purpose of providing relevant information for minority shareholders to evaluate the fairness of the offer. I am holding on to my shares and also of the same opinion as you, the worst could just be forced to sell at 2.70 in the event of compulsory acquisition.

Posted by dragon328 > 2021-09-16 16:37 | Report Abuse

The warrant is always a cheaper option to owning mother shares, especially so when Daibochi just crossed the exercise price of RM2.50. Before the privatisation offer by Scientex, my thought was that the risk-and-award of holding Daibochi-wb at 13-15 sen a piece was so much skewed to the upside thinking that Daibochi would be reporting growing earnings in the coming quarters after the capex expansion plan and its Mymnmar plant had returned to operations after workers' strike.

Daibochi would easily test RM2.80-3.00 if this July quarterly result or latest the Oct qtrly shows improvement in additional revenue and earnings growth, just like the case of TGuan and BPplas. Daibochi-wb would be worth at least 30-50 sen without any premium then.

Now this provatisation offer at RM2.70 makes the situation a little trickier. I agree with observatory that there is more of an element of gamble in betting on the warrant rather than mother share. The risk for wb would be for it to drop back to 20 sen or below if Scientex succeeds in privatising Dabochi at RM2.70 or withdraw the offer.

However, when I saw the huge buying orders of over 60 million (far exceeds the total issued shares of 27 million wb) at O.305-0.315, it strikes me that more funds or big players see the opportunity of loading up daibochi-wb as a much cheaper entry to blocking the privatisation effort of Scientex at unreasonable price. As Scientex owns very little (<5% stakes) of daibochi-wb, it opens up opportunities to other funds like Appollo or Samarang to raise stakes in Daibochi by up to 25m or 8% stakes at just 1/9th of the cost of buying the mother shares. They can decide to convert the warrants into ordinary shares as and when required. This is a very capital effective way of blocking Scientex from gathering 90% of the shares it did not own prior to the offer to force a mandatory take-over. These long term funds would not bother much if Daibochi is delisted or not, as they have representative at the company level and would continue getting dividends from Daibochi even unlisted. What they do not want to see is for them to forcefully part with their Daibochi stakes at RM2.70 when Scientex gathers 97.2% ownership of Daibochi.

Those funds holding less than 3% stakes in Daibochi would want to protect their own interests by loading up more wb at a fraction of the cost, so that they do not need to depend on other funds holding more to fight off the low-priced privatisation. If Scientex succeeds, they will not lose by selling all their warrants to Scientex at 32 sen. If Scientex raises offer price to RM3.00 or higher, they make a lot of money from buying wb itself besides getting higher price for their mother stakes. This is the war art of defending by attacking first.

The fact that the buy orders far exceed the total issued shares of wb only shows that there were more than one fund trying to load up the warrants. If volume traded dries up in coming days, it will make them and Scientex more desperate to buy up.

Conclusion is that holding daibochi-wb may have a low risk of dropping back to 20 sen but a higher chance of getting the upside to 62 sen or even 90 sen! It is 30% downside vs 100% - 200% upside. The choice is yours.

Posted by dragon328 > 2021-09-16 17:05 | Report Abuse

Daibochi is about to jump on a new growth phase having spent half of the planned RM100m capex expansion to increase capacity by 60%. Its share price and earnings have yet to reflect on this potential.

What Scientex is doing effectively force all minority shareholders to get off the plane before it takes off. Minority shareholders of Daibochi have been waiting for over 2 years since its acquisition of Mega Printing & Packaging in May 2019 to see the synergies and earnings growth that have yet to materialise.

This year is supposed to be the year of reckoning after spending RM125m for acquiring MPP and another RM100m on expansion. Scientex knows it very well so it is taking the advantage of weak share prices in August after a weak April qtrly result to launch the take over.

If the offer price is reasonably high above RM3.00 then it would have been a little reward for minority shareholders of Daibochi for approving the MPP acquisition and the huge capex expansion before seeing the growth in earnings and share price. But the low offer price basically deprives off the benefits of explosive earnings growth and share price appreciation of Daibochi from its minority shareholders.

Just look at DKSH. Had DKSH Gmhb the parent company who owns over 70% of the listed entity in Bursa made a privatisation offer at say RM3.60 per share of DKSH (which was trading at about RM3.00) before the announcement of June qtrly result, the minority shareholders of DKSH would have been deprived of the huge share price gain of DKSH after the June qtrly result announcement, which shot up to as high as RM4.85 . Minority shareholders of DKSH had been waiting for over 2 years since its acquisition of Auric Pacific Singapore in 2019 for close to RM500m to release the benefits of the expansion, and now we can see and reap the benefits of holding onto DKSH shares. DKSH is rewarding shareholders with much higher dividends. I would like to see similar case in holding onto Daibochi shares.

Posted by iknownuts > 2021-09-16 17:29 | Report Abuse

Its a no brainer for samarang and apollo to up their stakes. Their upside is huge (if sci ups their offer), but downside is limited to only transaction costs (accept offer at 2.70). Also, upping their stakes will influence other shareholders to play hardball since they are afterall the majority shareholders. It would surprise me if these 2 funds do not buy more shares.

The main test now is actually the much anticipated QR announcement which is expected by this month. in fact, mr market is generally also expecting good results following stellar results by tguan and bpplas, which has resulted in spike in prices for quite a few other plastic packaging related counters. It is also important to note that even with the highly anticipated ”good” QR announcement, the volume weighted average market price (vwap) in the last 3 months (since last QR) for daibochi is only Rm2.30.

So for everyone’s sake, just hope the results of daibochi is up to expectation. But if they do badly or pull something like tomypak, this is where the problems will start, esp if sci do not up their offer but manages to hit >75% shareholding and no longer meets public spread requirements.

Posted by observatory > 2021-09-16 20:12 | Report Abuse

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.

Posted by observatory > 2021-09-16 20:18 | Report Abuse

@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.

Posted by Zackmeiser > 2021-09-16 20:36 | Report Abuse

I personally think Daibochi is worth RM3 at least and the profit is growing. That said, despite the RM2.7 offer, many are lining at Rm2.69 queuing. That for me means there are those who are smart enough to think RM 2.7 is based on price.

I remember Petronas wanted to take MISC private, and after few years MISC gradually climbed up to RM7. All said, we are small investors only. What if the other big players want to sell? Nothing we can do also.

This furthers my question, if I don't sell, as a small investor, what will happen to the share?

Posted by Zackmeiser > 2021-09-16 20:56 | Report Abuse

Comparing this to CCB is different. This is more like the MISC privatization of Petronas. Good prospect company (packaging is to stay I believe). Even before the announcement, RM 2.3 is fine by me for now personally.

https://www.theedgemarkets.com/article/petronas%E2%80%99-failed-takeover-shows-misc-has-higher-value-says-hwangdbs

Posted by observatory > 2021-09-16 21:10 | Report Abuse

@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.

Posted by observatory > 2021-09-16 21:13 | Report Abuse

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.

Posted by observatory > 2021-09-16 22:01 | Report Abuse

@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.