QL (7084) : QL Resources - Takeover offer lapsed
Target RM4.29 (Stock Rating: ADD)
QL has announced that the offer to take over Lay Hong has lapsed as it did not achieve the threshold level of more than 50% of voting shares. In the worst-case scenario, we are neutral on this as QL will have a larger stake in the company which gives it more influence in Lay Hong, while everything else remains status quo. We believe that Lay Hong’s family will continue to grow the company, which in turn should benefit QL. We maintain our Add call and target price (based on the sector average of 23x CY16 P/E) for QL. Rerating catalysts include strong earnings growth from its aggressive expansion plans.
What Happened
The conwditional takeover offer on Lay Hong by QL closed yesterday. As at 5pm Malaysian time yesterday, QL had only managed to increase its shareholding to 39.92% (it needs more than 50% of voting shares to take over Lay Hong); hence, the offer has lapsed. QL will return the shares (1.59% of the shares) to the shareholders who had accepted the offer within 14 days from the closing date.
What We Think
To recap, QL launched a takeover offer on Lay Hong (LH) on 25 Sep 2014 as the latter refused to re-elect QL’s representative to the board. Since the takeover offer announcement, QL has extended its offer twice and had been gathering LH’s shares from the open market, increasing its stake in LH from ~27% to 38.3% currently. Despite this, QL failed to cross the threshold level of more than 50%, causing the MGO to lapse, which was expected given that LH’s family does not intend to sell the business and has strong support from other parties (according to the media, the motion to vote out QL’s representative from the board was supported by 63% of votes). Although the corporate exercise was not successful, we are neutral given that aside from having a larger stake in the company, everything else is status quo. By having a larger stake in LH, QL will have more influence on the company and we believe that it will continue to fight for a board seat. The LH family and QL collectively own 82.3% of LH currently; hence the company does not meet the 25% public spread requirement. In order to prevent it from being delisted, we believe that both parties will negotiate and work out a solution. We believe that LH’s family will continue to grow its business, which should in turn benefit QL (LH currently contributes 1.4-1.5% of our FY15-17 earnings forecasts).
What You Should Do
Accumulate. This news may have a negative knee-jerk reaction on QL’s share price. We view this as a good buying opportunity to ride on the company’s strong earnings growth.
Source: CIMB Daybreak - 11 December 2014
Target RM4.29 (Stock Rating: ADD)
QL has announced that the offer to take over Lay Hong has lapsed as it did not achieve the threshold level of more than 50% of voting shares. In the worst-case scenario, we are neutral on this as QL will have a larger stake in the company which gives it more influence in Lay Hong, while everything else remains status quo. We believe that Lay Hong’s family will continue to grow the company, which in turn should benefit QL. We maintain our Add call and target price (based on the sector average of 23x CY16 P/E) for QL. Rerating catalysts include strong earnings growth from its aggressive expansion plans.
What Happened
The conwditional takeover offer on Lay Hong by QL closed yesterday. As at 5pm Malaysian time yesterday, QL had only managed to increase its shareholding to 39.92% (it needs more than 50% of voting shares to take over Lay Hong); hence, the offer has lapsed. QL will return the shares (1.59% of the shares) to the shareholders who had accepted the offer within 14 days from the closing date.
What We Think
To recap, QL launched a takeover offer on Lay Hong (LH) on 25 Sep 2014 as the latter refused to re-elect QL’s representative to the board. Since the takeover offer announcement, QL has extended its offer twice and had been gathering LH’s shares from the open market, increasing its stake in LH from ~27% to 38.3% currently. Despite this, QL failed to cross the threshold level of more than 50%, causing the MGO to lapse, which was expected given that LH’s family does not intend to sell the business and has strong support from other parties (according to the media, the motion to vote out QL’s representative from the board was supported by 63% of votes). Although the corporate exercise was not successful, we are neutral given that aside from having a larger stake in the company, everything else is status quo. By having a larger stake in LH, QL will have more influence on the company and we believe that it will continue to fight for a board seat. The LH family and QL collectively own 82.3% of LH currently; hence the company does not meet the 25% public spread requirement. In order to prevent it from being delisted, we believe that both parties will negotiate and work out a solution. We believe that LH’s family will continue to grow its business, which should in turn benefit QL (LH currently contributes 1.4-1.5% of our FY15-17 earnings forecasts).
What You Should Do
Accumulate. This news may have a negative knee-jerk reaction on QL’s share price. We view this as a good buying opportunity to ride on the company’s strong earnings growth.
Source: CIMB Daybreak - 11 December 2014
