This article was recently published on www.nracapital.com and is reproduced with permission
Synear Food Holdings - a former high flying S chip receives delisting offer from its major shareholder at $0.186 cents........very disappointing but let's see what the IFA says !!
Synear Food (SF) was once a market darling with its IPO in 2006 at $0.54 and rising to a high of more than S$2.00 on the way there, SF also placed 175mn shares at $1.85. The chart below shows its rise to fame and its subsequent collapse.
Investors should read the delisting offer document and wait for SF's IFA to give its opinion on the offer to.
On the surface the offer looks very unattractive. The NAV of SF as at 30 June 2012 (its half year 2012 results announcement) was RMB2.31 or about S$0.45. The net cash in SF as at the end of June 2012 was RMB577.6mn or about S$113mn or about S$8.2 cents per share.
In terms of earnings, SF reported full year 2011 net profit of RMB6.5mn but at the nine months to Sept 2011, its nine month net profit was RMB61.2mn.
The six month 2012 net profit figure was RMB39.2mn.
For the full year FY2011, SF generated about RMB277mn in cashflow while for the six months to June 30, 2012, it generated about RMB98mn in gross cashflow and RMB60.8mn in net cashflow.
We can't predict what the earnings and cashflow will be but just based on the figures for FY2011 and the six months to June 2012, it would not be unreasonable to expect that SF can generate about RMB200mn in gross cashflow a year.
A DCF of this cashflow at 10-12% discount rate would yield RMB2.1bn or about S$402mn or about S$0.29 per share.
If we add the cash per share of 8.2 cents to this - we are looking at a theoretical fair value of S$0.37 per shares. This is almost a 100% higher than the exit offer price.
Based on these preliminary calculations, the offer price in my opinion significantly undervalues the business.
It would therefore be interesting to read the IFA opinion of what it thinks of the exit offer too.
Synear Food is hotly discussed in our forum. Click here
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