Zagro Asia released a formal proposal to seek the voluntary delisting of the Company which I think greatly undervalues the company.

I have sent an open letter to company reflecting my stance that the offer should be revised upwards to reflect the true intrinsic value of the company.

The proposed voluntary delisting at 30 cents came as a surprise to us. It deeply undervalues what is an intrinsically high quality business. 

In our opinion, a conservative appraisal of Zagro Asia would yield a valuation of at least 35 - 40 cents. 

First off, let me congratulate management for running a tight ship. For ten years, you have grown the earnings of the company consistently, even through tough times.

In the FY 2005, you earned $3.14 mil, and in the FY 2014, you earned a profit of $7.23 mil. In those ten preceding years, you have never recorded a loss, and have paid out a dividend in every one of those ten years.

More impressively, you have done so without the excessive use of leverage, and maintained an average Return on Equity (ROE) of over 11%. 

These numbers are highly impressive, and few listed companies in Singapore can match your track record in the industry.

ScreenClip

ScreenClip


THE OFFER GROSSLY UNDERVALUES ZAGRO ASIA


ScreenClip

ScreenClip

The current offer price of 30 cents pegs the companies P/B ratio at 0.87x.

In the preceding 5 years (Nov 2010 – present), your stock has traded at an average P/B of 0.95x.

In preceding 10 years (Nov 2005 – present), your stock has traded at an average P/B of 1.11x².

It is clear from the above charts that in the last decade, a P/B of 0.87x is close to the lowest end of the valuation range.

Given the sterling business record of Zagro Asia, there is no reason why it should not trade at least at least at book value.

This would imply an offer price of at least 34.58 cents.

A LOOK AT THE UNDERLYING ASSETS & BUSINESS OF ZAGRO ASIA

zagro pohbsZagro executive chairman and CEO Poh Beng Swee, 65.To add to the above point, I would like to highlight the high quality assets that Zagro Asia has.

The financial position of your company is in good shape, with significant amount of cash $27.9 million, representing 31% of your total equity. Furthermore, you also possess a freehold land valued at $5.4 million.

In addition, you have also pared down your borrowings by $4.6 million. There are no significant liabilities, either on or off the balance sheet.

It is safe to say that your balance sheet is at one if its strongest positions since its listing history.

Finally, in your latest half year results, the company recorded a significant improvement in net profits of 18%, from $3.3 million to $3.9 million.

CONCLUSION:

The above points highlight improving business results, a strong unencumbered balance sheet and solid business record.

There is no reason why Zagro Asia should not trade at least at book value, or even a premium of book value indicating a fair value or 35 – 40 cents.

Shareholders who have received notice of your voluntary delisting have already expressed scepticism that the proposed offer of 30 cents reflects the true underlying intrinsic value of your business³.

We have in principle, no objection to a delisting offer, and strongly urge the directors of Zagro Asia to revise their offer as it grossly undervalues what is intrinsically a high quality business.

Jun HaoTay Jun Hao
Director of Farrer Enterprise, Editor of The Asia Report
09/11/2015


You may also be interested in:


You have no rights to post comments

Counter NameLastChange
AEM Holdings2.480-0.020
Best World2.4700.020
Boustead Singapore0.955-0.005
Broadway Ind0.1390.012
China Aviation Oil (S)0.9500.010
China Sunsine0.410-
ComfortDelGro1.480-
Delfi Limited0.9250.005
Food Empire1.360-
Fortress Minerals0.320-
Geo Energy Res0.325-0.010
Hong Leong Finance2.490-
Hongkong Land (USD)2.990-0.050
InnoTek0.5350.025
ISDN Holdings0.3100.005
ISOTeam0.0410.001
IX Biopharma0.052-
KSH Holdings0.250-
Leader Env0.049-0.001
Ley Choon0.044-0.001
Marco Polo Marine0.0690.003
Mermaid Maritime0.1470.010
Nordic Group0.365-
Oxley Holdings0.090-
REX International0.1460.002
Riverstone0.760-0.010
Southern Alliance Mining0.485-
Straco Corp.0.4950.005
Sunpower Group0.220-
The Trendlines0.070-0.002
Totm Technologies0.025-
Uni-Asia Group0.820-
Wilmar Intl3.5400.010
Yangzijiang Shipbldg1.770-0.050
 

We have 481 guests and no members online

rss_2 NextInsight - Latest News