Who Is Public Investment Bank Trying To Kid By Saying Offer For Hume Industries Is Fair?

On Business Times: ‘Hume takeover price fair’

• THE improved takeover offer price for Hume Industries (M) Bhd of RM4.50 from RM4.30 earlier is fair, says independent adviser Public Investment Bank.
  
  The bank yesterday advised shareholders to accept the revised takeover offer by Spectrum Arrangement Sdn Bhd, a unit of the Tan Sri Quek Leng Chan-controlled Hong Leong Co (M) Bhd.
  
  Spectrum, which wants to take Hume private, said those who had already accepted the original offer would be entitled to receive the revised offer.Hume's share price last traded at RM4.48.

Fair because the offer price is raised from 4.30 to 4.50?

A mere 20 sen increase equates to fair????

OMIGOSH!!!!!!!!!!!!!!!

On Star Business: Hume shares rally on raised offer price

• Wednesday March 17, 2010
  
  Hume shares rally on raised offer price
  
  But analyst says RM4.50 is still below group’s net assets per share of RM5.17
  
  PETALING JAYA: Hume Industries (M) Bhd’s share price staged a rally after the company announced that its major shareholder has raised its buyout offer to RM4.50 per share from RM4.30 previously.
  
  The counter jumped 19 sen to close at RM4.48, its highest since June 18, 2007. Year-to-date the counter gained more than 13%.
  
  On Jan 14, Spectrum Arrangement Sdn Bhd (SASB), a wholly-owned subsidiary of Hong Leong Co (M) Bhd, launched a takeover offer for the remaining shares of Hume it does not own at RM4.30 a share.
  
  Hong Leong Co is Hong Leong Malaysia group’s ultimate holding company, in which Tan Sri Quek Leng Chan is a director and substantial shareholder.
  
  According to the announcement, SASB holds 118.8 million shares in Hume, representing about 64.94% stake in the company. Last week, SASB extended the deadline to buy the rest of Hume to March 25. SASB revised the offer price to RM4.50 per share on Monday.
  
  As at March 15, SASB had accumulated 85.89% of Hume shares. Analysts said the first offer of RM4.30 was rather low while the revised offer of RM4.50 was not that high either.
  
  “Although they’ve revised the price, it is still below the group’s net assets per share of RM5.17 as at Dec 31, 2009,” an analyst said, adding that the shares were already trading close to the offer price.
  
  As at Dec 31, 2009, Hume was in net cash position and had cash and cash equivalents of RM362mil, translating into cash per share of RM1.89, and net assets per share of RM5.17.
  
  “I suppose the take-up was not that great and prompted the company (SASB) to revise the offer price upwards. They may have to revise the price if the take-up is still not good unless they manage to obtain more than 90% equity in Hume to trigger a compulsory acquisition,” said another analyst.
  
  Under the regulations, shares from minority shareholders can be compulsorily acquired by SASB if it manages to secure more than 90% equity in Hume.
  
  Meanwhile, independent adviser Public Investment Bank Bhd advised Hume shareholders to “accept the offer.” It said the revised offer represented a premium of 12.5% to 35.1% over the five-day, one-month, three-month, six-month and 12-month volume-weighted average market price of Hume’s shares up to and including Jan 13, being the last market day prior to the takeover announcement.
  
  “Holders should note that the comparison above is based on the historical market price of the Hume shares and there is no assurance that the market price of the Hume shares will continue to trade at the current level in future, after the closing date on April 5,” it said in a filing with Bursa Malaysia.

OMIGOSHHHHHHHH!!!!

Look at the issues mentioned.

1. Below net assets.
2. Ok, they mentioned how much cash Hume has. Yes, it's 362 million cash or cash per share of rm 1.89 per share.
3. Then Public Investment Bank made that nonsensical comparison of the offer price versus the historical traded market price for Hume shares and said THERE IS NO ASSURANCE THAT THE MARKET PRICE OF THE HUME SHARES WILL CONTINUE TO TRADE AT CURRENT LEVEL IN THE FUTURE!

OMIGOSH!!! What silly comments is that? How did Public Investment Bank qualified to be the independant advisor? I wonder who they are advising for? I am EXTREMELY sure they are not advising on behalf of the minority shareholders here.

Yes, for sure THERE IS NO ASSURANCE THAT HUME SHARES WILL CONTINUE TO TRADE AT CURRENT LEVEL but this saying has to be applied for any other shares too!

Yes?

If they are saying this is the case, then perhaps everyone should start selling all their shares too! Why? Follow Public Investment Bank theory mah. No assurance mah.

Err... doesn't that sound extremely silly?

And I am so dumbfounded.

You pick up any research report and you will find them analysts talking about earning prospect.

So how come Public Investment Bank in today's FINANCIAL news doesn't focus on this earnings issue at all?

Why?

Why doesn't Public Investment Bank want to talk about Hume Industries earnings?

Why?

Can someone please tell me why?

Just how much money is Hume Industries currently making?

How about this posting for an answer: Offer For Hume Indistries Is Way Too Low

Look at Hume Industries current earnings posted in that posting.

Hume Industries made some 57.9 million for the first 2 quarters of the current fiscal year. (you can also verify the earnings here: Quarterly rpt on consolidated results for the financial period ended 31/12/2009 ) This equates to an eps of 32 sen. How much do you think Hume Industries eps for the fiscal year to be? Annualised at 65 sen per share? Not possible?

With an eps of 65 sen, based on earnings multiple, how's the offer price of 4.50? Does it sound remotely fair? Or is it grossly unfair?

If you need to count, the offer price is based on an earnings multiple of a mere 6.9x only.

Privatised at 6.9 x earnings multiple? Cash per share of 1.89 per share?

Fair offer?

Who is Public Investment Bank trying to kid?

And mind you, the earnings is based on an assumption that there is no more growth. If the growth outlook is so bleak, I wonder why other analysts are raising the earnings outlook for the steel sector.

MSWG are you even watching?

*************************
ps: How come during privatisation, all these investment bankers, sorry, I mean all these independent investment bankers would always, always paint the bleakest outlook for the company involved?

Just thinking out loud too.. if these companies outlook so bleak, why does the major shareholders want to privatise these companies? Surely not for fun, yes?

And surely not for the sake of letting them investment bankers make some money from this corporate exercise, yes?

Offer For Hume Industries Is Way Too Low

Wrote this the other day: Taking Of Hume Industries 1,2,3!

I took a wild guess and assumed that Hume Industries could ring in some 30 million in earnings.

Well Hume Industries reported its earnings tonight and guess what, I was little short. Hume Industries earnings came in at 34 million instead!

Anyway, look at the EPS for half year, it's 32.7 sen. How much do you think Hume Industries eps for the fiscal year to be? Annualised at 65 sen per share? Or perhaps at some be a bit more optimistic and assume an eps of 80 sen? Not possible.

And based on current prices, won't Hume Industries be the perfect investing gem?

Of course no.

The owners want to take this stock private at 4.30!!!!

Sigh!

Let's cheer for the investing and the great investing prospects where companies like Hume Industries can be taken private as per owners fancy.

The offer for Hume Industries to be taken private is not only seriously under valued but it makes a total mockery of the share market too!

Taking Of Hume Industries 1,2,3!

The other day I made the following posting Comments On Hume Industries Privatisation.

In it I had highlighted the fact that Southern Steel contributes a lot of its earnings to Hume Industries. In short, in my flawed opinion, Hume Industries, could indeed be THE HIDDEN GEM but what's the use for Hong Leong wants to take this hidden gem private.

Same thing they did to OYL Industries and same thing they did to Hume Cemboard.

And I found it rather disappointing that folks like Vincent Lim from OSK made the following remark.

• “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.

Perhaps I should have given him the benefit of a doubt since he already said he's not really sure but then he's a paid analyst, yes? And for him to be a paid analyst working for one of our so-called top research house, how could he making remarks like those.

As shown in the earnings screen shot here those were the only 2 quarters earnings in which Hume Industries had recorded losses and if he would just taken the time to look inside the earnings notes, the losses were contributed by Southern Steel's losses. And to make matters worse, Southern Steel was highly regarded by OSK and recently was given a massive fair value target price increase too!

Anyway, let's look back at the losses again. Hume reported that 100 mil losses ( see Hume's earnings notes here ) on 25 Feb 2009. Here is Southern Steel's earnings reported in the same month. Quarterly rpt on consolidated results for the financial period ended 31/12/2008.

Southern Steel lost some 259 million and if we use Hume's segmentals last year ( see screen shot here ), Hume reported some 80.496 million from its steel business (ie Southern Steel contributed some 80.496 million in losses to Hume's earnings, which works to some 31% or so.

Let's have a look at Southern Steel's earnings last night.

Southern Steel made some 59.7 million and using the very same 31% or so, in my flawed calculations, I reckon that Southern Steel could be contributing some 18.5 million to Hume Industries.

Last quarter, Hume Industries said it made some 23.9 million ( Quarterly rpt on consolidated results for the financial period ended 30/9/2009 ). SSteel contributed some 14.3 million to Hume's profits.

How?

Let me take a wild guess. I reckon Hume's earnings could be around some 30 million. Or some 50 million for 2 quarters.

Could we be looking at some 100 million in earnings this year (if the current steel fortunes could sustain)?

Let me take a much lower estimate and use an earnings estimate of only 80 million.

Hume Industries have some 191 million shares and this works out to an eps of around 42 sen.

How much does Hong Leong wants to take it private? 4.3o!!!

And this works out to a miserable PE multiple of around 10.2x!!!!!!!!!!!!!!!!

So based on simple earnings per share, do you think it's even fair?

Or do you think Hume Industries are being greatly shortchanged in this privatisation offer?

Of course some might say perhaps I am flawed as usual in my estimates of 80 million in earnings for Hume Industries. Of course, I am usually flawed. :D

But take a look at Hume Industries 2008 Q4 earnings. Quarterly rpt on consolidated results for the financial period ended 30/6/2008 (Yes I understand past earnings is simply past earnings and there's a chance it might not be repeated).

Anyway from that link, could you see that Hume Industries earned some 213 million for its fiscal year 2008!!!!!!!!!!!!!!!!

And Hume Industries earned some 136 million for its fiscal year 2007!!!!!!!!!!!!!

So do you think my estimate of a mere 80 million to be overly optimistic?

And if the global economy does recover, would it be too far fetched to see Hume Industries making some 150 million per year in the next couple of years?

Yeah, we could be looking at a company who has the potential to easily make some 80 sen per share in earnings.

But no, Hong Leong group wants to take it private at 4.30!!!!!!!!!!

And what about the cash per share yardstick?

Quote from Comments On Hume Industries Privatisation

• Yup, Hume Industries have some 349 million in cash balances and its bank borrowings is a mere 15.3 million. (Hume has some 191 million shares. What is the cash per share ratio?) Hume is being offered to be taken private at 4.30!!!!!!!!!

Cash balances of 349 million. Borrowings only 15.3 million.

This works out to net cash of 333.7 million or a cash per share of around 1.76!!!!!!!!!!!!

And yeah Hong Leong wants to take it private at 4.30!!!!!!!!!

How?

First OYL, then Hume Cemboard and now Hume Industries!

How?

Sad isn't it? If there was no privatisation offer, in my flawed opinion, I truly reckon that Hume Industries would have been one of the great investing gem of this new decade.

But too bad, too sad because Hong Leong group wants us, the investors, out of this company!

Sigh!!

Comments On Hume Industries Privatisation

Why do you buy stocks?

Duh! To make money.

LOL! That's the bottom line no? Now of course, many would be extremely quick to point out the many ways to do so but I am not here to talk about how to make money. Instead I would like to focus on the investor or the minority shareholder.

The minority shareholder believes that by investing LONG TERM. And when minority shareholder talks about long term, they are talking about time frames in decades and certainly not the one or two year time frame. This is because they reckon by investing long term, one mitigate the short term fluctuations of the stock market and most important by investing in the longer time frame, they feel that the company could grow and from the company's long term earnings growth, the minority shareholder feels that they could reap the benefits and be fully compensated for taking the plunge and risking their money in the stock market investment.

And this is how the investing 'game' is being played.

Invest or buy stocks of a company whose business one reckons is good and would have a fair chance to be better in the future at a cheap price. Yes, buy them cheap and hope that in time, the company's value appreciates fully to compensate the risk in buying the listed stock.

Yes the risk in investing is that one could buy the wrong stock or at the wrong price. Or through no fault of the investor, the company's fortunes could turn for the worst and go bust or a stock market crash could happen.

Ah, the chances of the stock market crash is real, no?

People talk about investing in decades. Yes more than 10 years. Some more than 20 years. Which is fine, if the company does indeed have a real rock solid business fundamentals. But on the other hand, if one look at our Recent Stock Market Crashes, one would have noticed that stock market crashes have occurred in every single decade for our Malaysian stock market. So the issue one have to justify is if one is investing long term in our local market is whether one's stock selection is solid enough to withstand a stock market crash? And if during the stock market crash, what if a real life emergency situation requires massive cash and forces one to withdraw their investments? Yes, one could staunchly believe in holding long term but what if the unforeseen situation offers no alternative solution and forces one to sell out during a period when the market has collapsed? Not remotely possible?

These are the investment risks. There is no such thing as a risk free investment. Which means when one buy a stock at any price, there is always the risk of seeing their investment go to zero.

So my point this morning is that when we can use a long term investing strategy in buying a stock but in regardless of our strategy, there is always a chance that our investment could go to zero. (Yes, I am aware of the cut loss option).

So how is the just compensation for one's investments risks?

Don't we want to see upside unlimited? Yes, there is zero boundary in how much we can win! :D

Is that request unfair? Is that request unjust?

No?

Let's see, we invest, we can lose it all, yes? So if we can lose it all, shouldn't it be fair that we are given a chance to win it all?

No?

If there is no chance to win it all, why invest?

Yes, why risk our hard earned money just to take the plunge in investing in a stock?

Are these simple fair arguements so far?

But what if the game is tilted?

You buy a stock at 5.00 and you are willing to risk all the 5.00 because you reckon the stock is worth at least 12.00 or even more if the company continues to grow. But what if someone comes in and put a cap to your gains and cut it to 5.50? Do you think it's just?

And this is how I feel whenever I see our local listed companies taking our company private!

And yes, this is how I felt when I read Hume Industry being taken private!

Outright shame.

Minority investors had invested in the company, WILLING TO RISK ALL THEIR MONEY IN THE STOCK because they felt there was value in the stock. Now the owners come in and cut them short in their investment by taking the company private!

Do you think the minority shareholders are fully compensated for their investment risks?

Do you?

Jan 15th 2010: Hong Leong group offers RM4.30 apiece for Hume and the following article caught my attention: Offer to take Hume private due to competitive forces

• Saturday January 16, 2010
  Offer to take Hume private due to competitive forces
  By FINTAN NG
  
  PETALING JAYA: Spectrum Arrangement Sdn Bhd’s offer to take Hume Industries (M) Bhd private by acquiring all the shares it or parties acting in concert do not already own may be prompted by Hume’s increasingly tough outlook for the businesses it is involved in.
  
  According to analysts, Hume is up against major competition in the business segments it is in. The little-covered company is involved in the manufacture of building materials such as fibreboard and concrete as well as furniture.
  
  Spectrum Arrangement, a subsidiary of Hong Leong Co (M) Bhd in which Tan Sri Quek Leng Chan is chairman and chief executive officer as well as a substantial shareholder, made the cash offer through Hong Leong Investment Bank Bhd on Thursday at RM4.30 per share.
  
  Quek is also executive chairman of Hume. As at Jan 14, Spectrum Arrangement directly owned 64.94% of Hume.
  
  “Although Hume is a manufacturer of medium-density fibreboards, Evergreen Fibreboard Bhd is the market leader while in concrete products, the big boys dominate,” OSK Research Sdn Bhd analyst Vincent Lim Vi Ming told StarBiz.
  
  Local listed firms that manufacture ready-mixed concrete products include Lafarge Malayan Cement Bhd and YTL Cement Bhd.
  
  AmResearch Sdn Bhd analyst Mak Hoy Ken said companies in the building materials industry faced tough conditions if they did not have access to markets abroad.
  
  “Bricks-and-mortar companies such as Hume cannot rely on just the local market,” he said. Mak does not have Hume in his coverage universe.
  
  Lim added that there were also risks in the furniture business due to price competition from China and difficulty in obtaining contracts. “Evergreen also has a furniture-making business but it’s ancillary to the company’s other businesses,” he said.
  
  Lim, who does not cover Hume, said at RM4.30, the offer was at a discount to the company’s net book value of RM4.67 per share as at Sept 30, 2009.
  
  “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.
  
  However, Lim said from the offeror’s perspective, this could be a good time to take Hume private as demand for fibreboards was steadily picking up and selling prices were also going up after a plunge in mid-2008.

Rather appalling news if you asked me.

• may be prompted by Hume’s increasingly tough outlook for the businesses it is involved in. According to analysts, Hume is up against major competition in the business segments it is in. The little-covered company is involved in the manufacture of building materials such as fibreboard and concrete as well as furniture.

Errr... I am sure that Hume Industry is not the ONLY company in the building materials in our market and if this is the justifications, then I guess all the other listed companies should also pack their bags and go private too!

Now OSK's Vincent Lim made the following remarks.

• “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.

How would one interpret such a statement? Incurred losses of rm100.77 mil for quarter ended Dec 31, 2008 and another loss of rm20.76 mil for the quarter ended Mar 31, 2009.

Doesn't this not sound like a company which has no future?

However, take a look at this screen shot.

Does Hume Industries looked doomed at all?

And the so called analyst from OSK picks on the ONLY 2 quarters that Hume Industries had suffered losses!

Why on earth did he not mention that since those 2 quarters, Hume Industries had turned around very impressively?

Another lopsided view from OSK? ( See my dear solomon would surely ask why I always pick on OSK's analysts! But.. but.. but.. isn't it so clear about OSK analysts?)

And best of all, let's dig a little bit at Hume Industries losses. Its 100 million losses: Quarterly rpt on consolidated results for the financial period ended 31/12/2008


And how much was the Southern Steel losses? Under Hume Industries business segmentals.


And then... the little thingy called irony struck me.

Southern Steel is under OSK's coverage!!!!!!!!!!!!!!!!!!!!!!!

See Featured Report: OSK On Southern Steel. For example in it's 7 May 2009 report (click on this screen shot posted earlier), OSK increased the Target Pric)e for Southern Steel just because it lost less money! (ps on today's papers: OSK Research overweight on steel. Quote: ""We have BUY calls on Lion Industries,Southern Steel and Masteel, a Trading BUY on Perwaja, but a NEUTRAL call for Kinsteel and a SELL on Ann Joo," it said. )

So how could OSK be so optimistic about Southern Steel and not rank Hume Industries at all when Southern Steel contributes a lot of its earnings to Hume Industries?

Yet another big mystery about OSK, eh?

Here's Hume Industries last reported earnings in November: Quarterly rpt on consolidated results for the financial period ended 30/9/2009. It made some 20.956 million for the quarter or an eps of 13.52 sen! (just imagine if you annualised the eps and compare the annualised eps versus the offer price to take Hume private!)

Now the best of all this is Hume Industries balance sheet. Look at the piggy bank cash! ( And I just could not believe how OSK analyst could comment at this stock without even looking at Hume's latest earnings and its balance sheet.)

Yup, Hume Industries have some 349 million in cash balances and its bank borrowings is a mere 15.3 million. (Hume has some 191 million shares. What is the cash per share ratio?)
Hume is being offered to be taken private at 4.30!!!!!!!!!

Good deal for who?

Does it sound fair for the minority shareholders who took the stock market risk to invest in the stock?

Do you think the minority shareholders are fully compensated?

How?

Here's another question. Now this is NOT the first privatisation exercise from Hong Leong group. It had happened before. OYL and Hume Cemboard comes to mind (and both privatisation left sour taste for the minorities too!). So what if Hong Leong group decides to pull another stunt on another of their company? Would you want to invest in another of their company when you know that there is a chance that you might not be fully compensated if the company is taken private?

How?