UOB KayHian advised that shareholders reject the general offer for shares of Wheelock Properties (Singapore), pointing to “hidden value” in its China development and valuation of the stock.
In July, Star Attraction, a wholly owned subsidiary of Hong Kong real estate giant Wheelock and Company, launched a takeover offer for Wheelock Properties (Singapore), or WPSL, in a deal that values the Singapore unit at over S$2.5 billion. The offer price of S$2.10 in cash marks a 20.7 percent premium over the last transacted price prior to the announcement. The offer closes on 7 September.
The independent financial adviser, Prime Partners Corporate Finance, said last week that the per share offer price was “fair and reasonable but not compelling,” and that it recommended accepting the offer unless able to obtain a higher price, the brokerage noted in a note this week.
But UOB KayHian said it saw potential upside to WPSL’s book value of S$2.60 due to the revaluation of China properties in the Fuyang district of Hangzhou as well as a compressing capitalization rate for Singapore commercial properties.
“We noted that the capitalization rate (4.25-5.25 percent) used by the independent professional valuers for WPSL have also been unchanged since FY16, despite the upturn in commercial property market (with recent commercial transactions completed at very low cap rates),” UOB KayHian said. “In addition, with the latest cooling measures implemented on Singapore residential market, investor interest could be diverted to the commercial property market (giving WPSL’s commercial properties a further boost).”
UOB KayHian also pointed to past successful general offers for property-related companies, noting that their average price-to-book valuation excluding outliers was 0.94 times, compared with 0.78 times for the WPSL offer.
A valuation of 0.94 price-to-book for WPSL would imply a fair value of S$2.45, the brokerage said.
“We think investors should reject the offer of S$2.10,” UOB KayHian said. “In our view, a more acceptable price is a range of S$2.30-S$2.45, which is comparable to our initial target price of S$2.33.”
The stock was up 0.46 percent at S$2.19 at 10:17 A.M. SGT.