Tat Hong announced on 15 March that they had been approached with regards to a potential transaction “which may or may not lead to an acquisition of the issued share capital of the Company”. According to Bloomberg, the Ng family currently holds an aggregated ~56% stake.

Post 3QFY16 results and on expectations for a subdued outlook to persist, we had a HOLD rating and FV estimate of S$0.45. This is based on 0.45x P/B, which is fairly near 1 s.d. below its two-year historical average and also keeping in mind of its low to negative ROE over the past two financial years.

Following a general plunge in share price, it has since gained 14.5 cents yesterday on significantly higher volume, effectively incorporating a takeover premium. We keep in mind that the group has been in the process of spinning off its tower crane rental business, which operates in China, on the Taiwan Stock Exchange.

As of 31 Dec-15, the company had a net debt to equity position of about 0.72x, which could be a concern for acquirers whom would likely have to take on its debt obligations. Nonetheless, we highlight that discussions are preliminary and there is no certainty that these discussions will result in any transaction.

Source: OCBC Research - 16 Mar 2016