Privatisation Offer by Chairman

• Hi-P International (SGX:H17) received a privatisation offer by its chairman at S$2.00 per share, which is 10.5% above last traded price of S$1.81 before the announcement, and 62% above our target price.
• We recommend minority investors to take the offer, as valuation appears attractive at 15.3x FY21E P/E, vis- à-vis 5 year average forward P/E of 10x and SG peers at 12.7x FY21E P/E.
• As we believe current Hi-P International share price fully reflects the fundamental value of the company, we Downgrade Hi-P International to SELL from BUY with unchanged ROE-g/COE-g target price of S$1.23 (1.4x FY21 P/B).

Transaction Rationale

• The offeror is YHT Venture, wholly controlled by chairman and CEO Mr. Yao Hsiao Tung. YHT Venture has irrevocable undertakings of 83.5%. The offeror’s intends to delist Hi-P International and the rationale for the bid are
  1. greater management flexibility; and
  2. no need for Hi-P International to access Singapore capital markets in the foreseeable future.
• The offer price is 42% above 3-month VWAP of S$1.405.

Deal Metrics

• The deal prices Hi-P International at 7.2x FY21E EV/ EBITDA, slightly above its long-term forward EV/EBITDA of 6x. The deal also infers 19.9x/17.1x FY20-21E P/E respectively, which we believe is attractive from the perspective of minority investors, on account that this is higher than
  1. 5-year average forward P/E of 10x (+1SD: 14x, +2SD: 18x); and
  2. 14.7x/12.7x FY20-21E P/E that Singapore-listed EMS/ precision engineering peers are trading at.

Reiterate BUYs on Frencken, UMS, AEM, and Venture Corp

• In our SG-tech coverage, candidates with attractive FY21E EV/EBITDA are AEM (SGX:AWX) (5.7x) and Valuetronics (SGX:BN2) (2.2x).
• Given AEM’s expertise in system level test (SLT) and SLT’s rising significance, we see AEM as a potential M&A candidate.
• While we currently have HOLD on Valuetronics (SGX:BN2) as we see the stock fully valued in the next 12 months, Valuetronics’ low FY21E EV/ EBITDA may be attractive to investors with a much longer time horizon.
• We reiterate BUYs on Frencken Group (SGX:E28) (target price S$1.39), UMS Holdings (SGX:558) (target price S$1.41), AEM (SGX:AWX) (target price: S$5.05) and Venture Corp (SGX:V03) (target price S$23.27) as we remain positive towards their prospects and end-markets.

Source: Maybank Kim Eng Research - 20 Dec 2020