Based on experience, when brokers’ start to make calls on potential takeover targets, it’s time to take some money off the table.
Likely candidates are found in the consumer, oil and gas and tech-related sectors. For the next PE investment cycle, we believe the consumer sector will rank highly on the buyers’ radar screen, as we are likely to see Asia’s rising disposable income and affluence growing over the next three to five years. A possible takeover candidate within this segment is Asiatravel.
The Singapore O&G sector caught our eyes for being the cheapest O&G basket globally. Excluding outliers such as Mermaid (100 times FY11), the Singapore O&G sector trades at 7.2 times PE, a 33 per cent discount to the global average of 10.8 times.
Although the sector’s near-term outlook is weakened due to macroeconomic factors, we believe buyers with a longer-term investment horizon can take advantage of the current lull to position for the eventual upswing in oil prices and demand sometime in 2012.
Mermaid Maritime is among the most undervalued stocks for privatisation or takeover. [Kinda weird this as in previous para this stock is reported as trading at 100xFY11].
For the shipyards, we think that JES’ net cash position and free cash flow by 2011 makes it an ideal privatisation target, especially when the owners hold 55 per cent of the issued share capital.
The recent furore over Armstrong Industrial’s takeover also reminded us that tech M&A deals could also heat up as cash-rich global MNCs look to acquisitions to accelerate growth and expansion into new geographies.
Possible targets with good technical strength and solid balance sheets are Hi-P, Meiban and STATS ChipPAC.
Other candidates which are not part of any top-down investment trends include Biosensors, Luye Pharmaceutical, Wheelock Properties and OKP.