Cash offer: Weida’s storage tank products. Founder and group chairman Datuk Lee Choon Chin has made a cash offer of RM2.40 per share to entitled shareholders to take the company private.

PETALING JAYA: Despite the discount to its book value, the buyout offer for Weida (M) Bhd  seems fair, given the premium attached to the company’s average share price.

According to an analyst, the offer would give investors a chance to exit their investments in the company that has not been performing strongly in recent years at a reasonable profit.

“Financially speaking, Weida has not been performing as the group’s earnings have been under pressure and its revenues have been volatile in the last five years,” the analyst with a local bank said.

“When you look at its share price performance over the same period, the counter has rarely breached the RM2 mark, and did not stay there for long,” he added, noting that Weida’s average share price in the last five years was only around RM1.60.

The offer made through Weida Management Sdn Bhd (WMSB) and persons acting in concert, who collectively own about 33.3% of the issued share capital in Weida, would amount to RM203.17mil for 84.65 million shares.

Lee, who owns an 88% stake in WMSB, is deemed the ultimate offerer.

The proposal to take the company private and delist it from the Main Market of Bursa Malaysia would be executed via a selective capital reduction (SCR) and repayment exercise.

Weida’s shares rallied upon resumption of trading the day after the announcement of the privatisation offer was made.

The counter rose 19 sen to close at RM2.24 on Tuesday.

The rally was only to be expected, a broker said, as Weida’s shares were trying to catch up with the offer price.

“The counter would likely continue to rise in the days ahead to a level that matches the offer price,” the broker said.

The buyout offer of RM2.40 represents a 17% premium to Weida’s last traded price of RM2.05 on Friday.

Weida said the offer represented a premium ranging from 19.94% to 23.64% based on the five-day to one-year volume-weighted average price of the company’s shares.

However, the offer came with a 27.5% discount to Weida’s latest-reported book value of RM3.31 per share.

“The construction sector’s growth in Malaysia, particularly Sarawak, should be a boon for Weida, but these positivities have not been reflected in its financial performance. Hence, the lack of investor interest in the company’s shares,” the fund manager with a local asset management company said.

“The buyout is an opportunity for existing investors to exit at quite an attractive price, while at the same time, enabling the company to unlock value,” he added.

In explaining the rationale of the buyout offer, Weida said its listing status might have provided minimal value-add and relevance to its shareholders as the company had not undertaken any equity fund-raising through the platform in the last 10 years, but had to bear additional costs to comply with regulatory requirements as a public listed company.

In addition, Weida said there was limited coverage by research analysts and brokers on the company, resulting in a lack of investor awareness and interest in the company; and the liquidity of Weida shares had also been low.

Importantly, Weida reckoned the market had not been able to accord the company with a valuation in line with its net assets. It said the condition was not expected to change anytime soon in view of the challenging market environment.

The company said the proposed SCR would be an exit option for investors.

Under the proposed SCR, the issued share capital of Weida would be reduced by way of cancellation of the Weida shares, resulting in the reduction of the issued share capital of Weida by RM203.17mil, representing 406.34 million Weida shares.

However, given that Weida’s issued share capital comprised only 133.33 million shares worth RM66.67mil, a proposed bonus issue would be undertaken to increase the share capital to a sufficient level for the capital reduction.

Weida’s net profit fell 41% to RM9.26mil for the six months to September 2017 from RM15.71mil in the previous corresponding period, with its earnings per share falling to 7.3 sen from 12.38 sen previously.

The group attributed the lower earnings to lower revenue.

During the period in review, Weida’s revenue fell 34.7% to RM117.27mil from RM179.52mil previously, mainly due to low contributions from both the works and property development segments.