| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM4.85 (+53.5%) |
| Last Traded | RM3.16 |
| Recommendation |
A leading diversified manufacturer proposes to take its packaging subsidiary private, aiming to consolidate operations and enhance efficiency. The move, involving a selective capital reduction and repayment (SCR) exercise, is viewed positively by analysts for its long-term strategic benefits.
The company has put forth a proposal to privatize its 71.89%-owned subsidiary, Scientex Packaging (Ayer Keroh) Bhd, via an SCR. Under the terms, minority shareholders holding the remaining 28.11% stake will receive a cash consideration of RM1.50 for each ordinary share. This translates to a total payout of RM147.8 million, which the parent company plans to fund through a combination of internal funds and/or borrowings.
Strategic Alignment and Operational Efficiency
This privatization move is strategically aligned with the company’s long-term objectives. It is expected to allow the group to consolidate and streamline its packaging manufacturing operations under a single entity. The consolidation is anticipated to enhance operational efficiency, optimize resource allocation, and strengthen management oversight across its packaging division, thereby unlocking greater synergistic value.
Financial Implications and Outlook
The offer price of RM1.50 per share represents a 5.9% premium over the subsidiary’s 6-month volume-weighted average price (VWAP) of RM1.42 and a 2.7% premium to its prevailing market price of RM1.46 as of September 12, 2025. However, it stands at a 5.8% discount to its 12-month VWAP of RM1.60. Based on estimated FY25 earnings per share of 7.67 sen, the SCR offer price implies a P/E multiple of 19.6x, which is lower than the P/E of 23.2x during a previous attempt to fully acquire the subsidiary.
While the proposed SCR is expected to marginally increase the group’s gearing level by 0.02x to 0.48x, the financial impact on the parent company is considered minimal, given the total payout requirement. Analysts anticipate that despite additional interest costs, the group’s FY26 earnings are projected to improve by 6.5%, after factoring in the net impact of financing expenses.
Analyst Recommendation
The privatization proposal is subject to approval from the subsidiary’s entitled shareholders at an upcoming extraordinary general meeting (EGM), requiring at least 75% approval from votes cast, with no more than 10% of disinterested shareholders voting against the resolution.
TA SECURITIES has maintained its “BUY” recommendation for the parent company, with an unchanged target price of RM4.85 per share. This valuation is based on their sum-of-parts (SOP) methodology, reflecting confidence in the company’s strategic direction and future earnings prospects post-privatization.
