Tuesday, October 9, 2012

Latexx Partner: M(ission)&A(ccomplished)

Rubber Gloves

Solid interest in glove players. Takeover offers for Latexx Partner and Adventa at 12-13x forward PERs are much higher than the 8-9x their relatively larger peers (i.e. Supermax, Kossan) are currently trading at. Additionally, we believe that the recent rebound in latex prices will short-lived; we expect prices to trend down over the medium term on a soft global auto sales outlook. There is also an increasing investor interest in cheaper healthcare alternatives. Stay Overweight.

Latexx Partner: Takeover at 10x fwd PER. Semperit Investment Asia (SIA) yesterday offered to acquire all the remaining ordinary shares and warrants (2007/2017) in Latexx Partner (Latexx). The offer price is MYR2.30/Latexx share and MYR1.77/warrant representing premiums of 28% and 36% respectively to their last traded prices, implying a consensus 2013 fully-diluted PER of 12x (10x if without conversion of warrants) and an 2012 P/B of 1.9x.

SIA has secured a 47% stake in Latexx. Chairman and CEO Mr. Low Bok Tek has agreed to divest his entire shareholding of 29% in Latexx, as well as 35m warrants. Additionally, another eight major shareholders have entered into put and call option agreements with SIA for an additional 9% shareholding and 10m warrants. Upon full conversion of the warrants, SIA would have secured 47% of Latexx. It will not maintain the listing status of Latexx if free float falls below 25%.

Other recent notable M&As. To recap, Southern Capital Group offered to buy Adventa out at 13x fwd PER in Jul 2012. Thereafter, 30% of YTY’s (Not Listed) stake was sold to Indorama in Indonesia in Aug 2012 at an undisclosed price.

Upside for larger, cheaper peers. Glove players such as Supermax and Kossan, which are similar to or larger in size than Latexx and Adventa in terms of capacity, currently trade at forward PERs of 8-9x. We believe there will be a re-rating for the listed players and the valuation gap will eventually close.

Insignificant M&A from now. With Adventa, Latexx and partial of YTY taken off the market, we do not foresee any major M&As in Malaysia in the next 1-2 years. If any, it would be Top Glove buying smaller unlisted competitor(s) to increase market share. To recap, Top Glove acquired a small latex glove player at a historical GMP of 1.5x P/B in Jul 2012.

Source: Maybank Research - 9 Oct 2012

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