KUALA LUMPUR: Analysts are recommending that stakeholders accept the unconditional takeover offer for Hock Seng Lee Bhd at RM1.35 a share.

       Hock Seng Lee said in a bourse filing yesterday that its joint ultimate offerers comprising Datuk Yu Chee Hoe, Tan Sing Ngiik, Vincent Yu Yuong Yih and Tony Yu Yuong Wee had made a voluntary offer of RM1.35 a share to acquire all the remaining 86.9 million shares or 15.8% stake not held by them.

       The offer is unconditional on the minimum level of acceptances as the joint offerors have more than 50% stake in the company.

       According to Hong Leong Investment Bank, the takeover is a positive development as the offer price of RM1.35 is 25% above its previous target price of RM1.08 and represents a 23% premium to KL Construction Index's trading price-earnings multiple.

       The research firm deems the valuation to be stretched considering that Hock Seng Lee is a small-cap contractor.

       "At RM1.35, HSL valuations are generous at FY21/22/23 P/E multiple of 20.6x/15.0x/13.6x," it added.

       HLIB also noted that the construction segment is plagued by various risks, including high materials cost, labour shortages and political fluidity.

       "While we do expect gradually improving earnings execution and recovering job flows in Sarawak moving ahead, we believe such optimism is more than priced in at the offer price of RM1.35," it said.

       Meanwhile, MIDF Research said based on the recent quarter results, the net asset per share stood at RM1.58, which translates to a value gap of 23 sen per share or additional market valuation of about RM126.4mil.

       However, the current offer of RM1.35 represents a forward price-earnings ratio of 16.6x, which it believes to be fair.

       It said the company has historically traded with the five-year average of 10.9 times with the standard deviation of 9.7 and 12.1 times.

       "We recommend for the investors to accept the offer as we deemed it to be within the appropriate valuation range for HSL," it said.

       Kenanga Research said in its own update that the offer is fair as it implies an ex-cash FY22E PER of 8.5 times, which falls within Hock Seng Lee's small mid-cap contractor peers' forward FY22 PER range of 4-12 times.

       "Hence, we suggest minority shareholders accept the offer.

       "In view of the privatisation, we also take this opportunity to cease coverage on HSL. Our last call was 'market perform' with a TP of RM0.95 pegged to FY22E PER of 10x," it said.