Tuesday, March 20, 2012

ENG- privatization offer price lowered to RM2.00 a piece

On October 14, 2011, I recommended ENG as a good buyout play (here). The stock was heavily sold down due to the massive flood in Thailand that impact its two plants there. At the time of writing that post, the stock was trading at RM1.80 which was RM0.70 below the proposed privatization price of RM2.50.

Subsequently, the true impact of the flood became apparent. Even one of the major shareholder, Dato' Teh Eong Liang (the brother to ENG's CEO Dato' Teh Yong Khoon and the son of ENG's Chairperson, Datin Low Yeow Siang) sold down his stake in ENG (here). The stock traded at a low of RM1.50 but I felt that the selldown was overdone & I recommended a HOLD.

My faith in ENG took a further knock when I read its accounts for QE31/12/2011. In that statement, the company wrote off property, plant & equipment as well as inventories totaling RM45.8 million arising from the flood. I always felt that the management of ENG was very professional & conservative and they must have taken adequate insurance against many risks, including flood. The write-off seems to suggest otherwise.

Yesterday, ENG announced that the offeror has proposed a revision in the buyout price to RM2.00 (here). If this is acceptable to ENG, the deal may still go through. To those who have stayed with the stock, you may make a small profit from this investment. Of course, you could have done better by putting your money into other stocks which were heavily sold down during that period. My call on ENG reminds me of another earlier call to buy Courts; both have proven to be interesting journey. One day, we can talk about ENG- like Courts- with a slight tint of nostalgia because they won't be with us any more. However, as a blogger, I wish all my calls would be straight forward, with no wild swing.

Chartwise, you can see that ENG is now pressing against the horizontal resistance at RM1.80. This coincides with the line connecting the recent highs after the flood. If it can break above this level, it may go to RM1.90 - a 5% discount to the revised buyout price at RM2.00. The current price of RM1.80 incorporates the risk that the deal may still falter & the share price may drop back to the 50 & 100-day SMA line at RM1.72. There is very little profit to be made from a trade on this stock now. For those who are still holding into the stock, you can wait for the buyout & take home a further 20-sen profit (or a return of 11%) for a holding period of 3-4 months.

Chart: ENG's daily chart as at Mar 20, 2012 (Source: Quickcharts)


newbie said...

Dear Alex,
Touching on the subject of privatization,could you kindly offer your take on TSM?Its fate is currently hinging on the offer of RM1.25 from WRC.It's a very ridiculous offer,don't you think?Do you think it will go through?
Thank you in advance,Alex.

Alex Lu said...

Hi newbie,

I agree with you on the disappointing offer to privatize TSM. The stock was badly beaten down due to the error of diversifying into the die-cast & precision operation. The management has discontinued that operation & recognized the losses. To offer to privatize the company at such a low price when it is on its knees strikes me as opportunistic.

The major shareholders are Lim KY and his family members. Their stakes amount to 25%. This means that it is not easy to privatize this company, especially at such a low price.

newbie said...

Dear Alex,
Thanks for your swift reply.From what I understand,both Lim KY and Lim Tze Tian who are directors of TSM are the main shareholders of the offeror,ie,WRC.Does that mean the chances of the deal going through is extremely high?
Thanks again,Alex.

Unknown said...

Hi Alex,

What is your view about Banalec, will it be rising after the expiry of Benalec-CA?

How about Ancomlb? Its seem like moving today.