There have been a spate of privatisation exercises happening in Singapore’s stock market in recent months.
For instance, in early March this year, OSIM International Ltd’s (SGX: O23) founder and leader, Ron Sim, had launched an offer to take the company private. Then earlier this month, there was China Merchants Holdings (Pacific) Ltd (SGX: C22), whose majority owner had offered to acquire all the company’s shares that it does not yet own.
Just this morning, Eu Yan Sang International Ltd (SGX: E02) announced that its chief executive, Richard Eu, has offered to take the company private. Yee is working in concert with other investors including his family members and Temasek, one of the Singapore government’s investing arms.
Reason for bidding goodbye
This raises a question for me: Why are companies in Singapore delisting? I have one possible reason: There are many companies here that have been awarded low valuations by the market partly as a result of their own weak business performance.
Eu Yan Sang is itself a good example. In its fiscal year ended 30 June 2015 (FY2015), the firm saw its net profit fall from S$15 million in the previous year to just S$4.6 million. In the first nine months of FY2016, its profit had shrank by over 90% from S$8.2 million to just S$634,000.
At the firm’s share price of S$0.65 just prior to the buyout offer, it was valued at 1.8 times book value; Eu Yan Sang has had an average price-to-book ratio of 2.0 over the past three years.
As yet another example, OSIM’s 2016 first-quarter results saw it post a 42% drop in profit to S$8 million – and that’s after it had suffered a 50% fall in profit in the whole of 2015. In the three years prior to OSIM’s buyout announcement, it had an average price-to-sales ratio of 2.3; on the day just before the announcement, the company’s price-to-sales ratio came in at just 1.46.
A different use of time
In Singapore’s stock market, listed companies have to provide quarterly or half-yearly reports to investors and that may consume significant attention from management. Listed companies also have to answer to public shareholders, which may make it harder for those whose business are in trouble to execute their turnaround strategies.
By going private, a company can focus on managing the business and answer only to a small handful of investors.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn't own shares in any companies mentioned.