Wednesday May 15, 2013
Minority shareholders advised to accept Ingress offer
RHB Research analyst Alexander Chia said based on the research house's challenging assessment of the auto parts industy, the firm believed that it would be difficult for Ingress to grow its domestic earnings significantly in the face of price cuts by domestic original equipment manufacturers.
“While total industrial volume in Thailand is still on a growth trajectory, market share gains will also be difficult to achieve given the entrenched position of Japanese autoparts makers there. Contributions from Thailand are still relatively modest.
“We assume earnings-per-share growth of 3% deriving financial year 2014 (FY14) earnings per share of 24.6 sen,” he said in a non-rated report.
Ingress is mainly involved in the manufacture and supply of automotive components to customers in Malaysia, Thailand and Indonesia. Its automotive components are supplied to customers ranging from national marques Proton and Perodua, to global OEMs like Toyota and Honda. It also operates a vehicle distributorship selling BMW and Mini cars.
Despite not being the independent adviser and not covering the stock, RHB Research published the report as an update on the company.
Checks with Ingress revealed that independent adviser Affin Investment Bank was expected to publish its circular to minority shareholders after the Securities Commission's approval. However, the timeline is not determined yet.
The privatisation offer was despatched to shareholders on May 7, and the major shareholders have until July 6, to achieve the desired acceptance level from the minorities to succeed in their bid to take the company private.
The major shareholders namely Datuk Rameli Musa and Datuk Abdul Wahab Ismail jointly own 29.81% of the company, and they intend to achieve at least 90% acceptance in nominal value from the remaining 70.19% shareholders for the corporate exercise to succeed.
Chia said Ingress's FY13 results were fairly lacklustre despite full recovery from the Thailand flood as higher costs squeezed margins.
“We believe attempts by domestic auto component manufacturers to penetrate regional markets will be slow going. Ingress is one of the few manufacturers to have a significant presence in Thailand and Indonesia.
The auto manufacturing industry in Thailand and Indonesia is dominated by the Japanese OEMs with Japanese auto parts suppliers already well entrenched. We believe it will be difficult for a domestic player like Ingress to significantly grow its market share in these regional markets,” he said.
He said the research house arrived at a fair value estimate for Ingress at RM1.72, based on a target multiple of 7 times applied to its FY14 earnings-per-share estimate. It said its price-to-earnings ratio target for the stock was a 27% discount to the auto parts sector average of 9.6 times due to smaller scale of operations, weaker return on equity, lack of dividend track record and smaller market capitalisation.
“By business activity, MBM is the closest peer to Ingress as it is also involved in automotive retailing. On this basis, we believe the RM1.85 cash offer price for Ingress is attractive. Minority shareholders should accept the offer, in our opinion,” he said.