PETALING JAYA: Shares in SCGM Bhd fell after it announced plans to dispose of its entire core business.
Investors were not excited about the proposed disposal, seeing the plastic packaging company dishing out a special dividend of RM2.21 per share compared to its higher share price of RM2.38 before trading resumed.
Kenanga Research expects SCGM to be classified as a “cash company” following the proposed disposal.
“We believe that the purpose of the disposal is to enable SCGM to unlock the value of its investment in Lee Soon Seng Plastic Industries (LSSPI) and reward the existing shareholders for their support of the group,” it said in a report yesterday.
The research house pointed out that SCGM planned to maintain its listing status while looking to acquire new business or assets.
Following the divestment of its core business, SCGM has proposed to distribute to its shareholders a special dividend of RM425.5mil or RM2.21 per share, which is about 78% of the entire divestment consideration.
The remaining proceeds will be utilised for the acquisition of new business or assets or working capital (RM84mil), the transfer of properties (RM18.8mil) and estimated expenses related to the exercise (RM16mil).
Yesterday, shares in SCGM closed 3.78% or nine sen lower to RM2.29.
On May 9, trading in SCGM was suspended pending the proposed disposal announcement of its core business.
SCGM products
The group said it had entered into a conditional share sale agreement with two Japanese firms – Mitsui & Co Ltd and FP Corp (FPCO) – for the proposed disposal of 100% equity interest in LSSPI for RM544.38mil cash.
Mitsui will purchase a 60% equity interest or 63.88 million LSSPI shares for RM326.63mil cash, while FPCO will take up the remaining 40% stake or 42.59 million shares for RM217.75mil cash.
SCGM expects the exercise to be completed by the third quarter of 2022, pending the approval of at least 75% of the total number of issued shares held by SCGM shareholders at an EGM.
Public Investment Bank Research deemed the deal “fair” despite the proposed dividend distribution of RM2.21 per share, which is about a 5% discount to its target price of RM2.32, based on 13 times the calendar year 2023 earnings per share.
“Upon completion of the proposed disposal, SCGM will not have any core business,” it said.
LSSPI represents the entire core business of SCGM, which comprises the manufacturing and trading of plastic packaging products, electronics, medical industries and personal protective equipment.
Meanwhile, Kenanga said that the entire disposal consideration of RM544.38mil was derived from an enterprise value of RM588.1mil for LSSPI, after deducting net debt of RM62mil and adding back properties transfer consideration of RM18.2mil.
“This translates to RM2.83 per share, which is above our previous target price of RM2.34.
“The premium valuation – which implies an enterprise value to earnings before interest, taxes, depreciation and amortisation ratio (EV/Ebitda) of 10.6 times and the price-earnings ratio (PE) of 16 times based on LSSPI’s historical financial data – offers a a timely exit opportunity for SCGM shareholders,” it said.
Kenanga expects that SCGM is likely to get the necessary approvals from the shareholders.