HTL INTERNATIONAL's share price jumped in early trade today (8 Jan) after an announcement of a potential offer to privatise the company at $1.00 a share by a Chinese investor.

The Singapore-listed leather sofa manufacturer's stock traded between 81 and 85 cents, up from its previous close of 68.5 cents.

That's still a big discount to the potential offer of $1 a share as there is no certainty that the offer will materialise. 

In fact, the offer price itself is not finalised as it will be determined by bilateral negotiation, and will be confirmed no later than 20 Feb 2016.

HTL was founded by the Phua brothers in 1976, initially making PVC sofas for the Singapore market. Photo: Company
Yihua Timber has agreed to purchase all HTL shares (excluding treasury shares but including shares issued upon the exercise of share options) in cash by way of a scheme of arrangement. At $1 a share, HTL is valued at around S$400 m.

Yihua Timber, which is listed in Shanghai, will be submitting the acquisition proposal to its own shareholders for approval.

It will also apply (whether by itself or by the offeror which is its wholly-owned subsidiary) to the relevant PRC authorities for all the necessary approvals to implement the proposed acquisition.

Curiously, HTL's controlling shareholder, BEM Holdings, which is owned by the Phua brothers, has agreed to profit targets for HTL of US$25 m, US$27.5 m, and US$30.25 m for Years 1, 2 and 3, respectively, starting from 1 June 2016.

BEM is liable to make up for any shortfall if the profits do not meet the targets. 

These targets are substantially higher than the US$7.8 m, US$0.8 m and US$5.3 m that HTL has achieved in 2012, 2013 and 2014, respectively.

Assuming HTL achieves US$25 m in net profit in Year 1, the PE ratio at which Yihua buys the stock (assuming $1.00 a share) would be about 11X. It's not exactly a grandiose offer. 

(For more details, see HTL's announcement here).

HTL was highlighted in our Nasi Lemak portfolio back in Aug 2015 when it was 23 cents.

The stock picker elaborated on the investment merits of HTL in an article: 

Undoubtedly over the moon with how the price has since soared, he is looking to see how another favourite stock, a long-time holding, of his will perform going forward.

The stock, which is also in the Nasi Lemak portfolio, is China Sunsine, the world's No.1 producer of rubber accelerators, which aid in the manufacturing of tyres.

KGI Fraser had a report recently speculating that China Sunsine also could be privatised:

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China Sunsine0.475-0.010
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JB Foods0.580-
KSH Holdings0.340-0.005
Medtecs Intl0.860-0.015
Moya Asia0.069-0.003
Nordic Group0.235-0.005
Oxley Holdings0.2400.010
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Sri Trang Agro1.180-0.010
Straco Corp.0.500-
Sunningdale Tech1.510-
Sunpower Group0.675-0.025
The Trendlines0.093-0.004
UG Healthcare0.650-0.015
Uni-Asia Group0.625-
Yangzijiang Shipbldg0.935-0.015

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