• VST’s S$0.68/share offer for ECS
• Intends to delist ECS
• Accept the offer

VST Holdings Limited to make cash offer for ECS

Last Friday night, ECS announced that VST Holdings Limited (“VST”), which has 89.5% shareholdings in ECS, intends to make an unconditional cash offer of S$0.68/share for all the remaining ordinary shares it does not currently own. Separately, VST also proposed to pay holders of outstanding options a cash amount by which the offer price (S$0.68/share) is in excess over the exercise price of the options, provided that the option holders do not exercise their options by the close of the unconditional cash offer. Note that VST intends to delist and make ECS its wholly-owned subsidiary. That is if entitled to, VST will exercise its rights of compulsory acquisition of the remaining ordinary shares.

Latest 9M14 results update

For 9M14, ECS’ PATMI came in slightly below our expectation as it formed 72.0% of our FY14 projections while revenue was in-line at 74.1% of our FY14 projections. ECS’ 9M14 revenue declined 1.1% to S$3.1b while PATMI grew 1.2% to S$26.2m as its strategy to shift focus from the lower margin DT segment to higher margin ES segment appears to be paying off. Furthermore, we think ECS is on track to meet our FY14’s PATMI projection as we expect PATMI to grow further with strategy to focus on higher margin segment.

Unchanged FV; ACCEPT the offer

Taking into account its latest results, we retain our forecasts and reinstate our previously under review FV of S$0.68. The cash offer of S$0.68 proposed by VST represents a premium of 11.48% over its last traded price on 22-Sep (last trading date prior to suspension), and 9.15% to its 6-month volume weighted average price up to 22-Sep. We believe the offer by VST presents a good opportunity for investors to exit the illiquid market for ECS shares. The average daily trading volume for ECS during the 6-month period up to 22-Sep was only ~102,297 shares, representing less than 0.04% of the total number of issued ordinary shares. Furthermore, VST does not intend to take any steps to restore public float to lift the suspension of trading. Hence, with the offer price of S$0.68/share meeting our FV estimate, we think the offer is fair and recommend shareholders to accept the offer.

Source: OCBC Research - 17 Nov 2014