Wednesday, 13 May 2015

OSK et al Fight Back

Yesterday OSKH's share price closed at RM2.05, which is almost the same level compared to mid-Oct last year when it first announced the proposal to acquire shares of OSKProp & PJDev.

Now the proposal has been approved by Security Commission.

Compared to 7 months ago, there are changes in the total paid-up shares of OSKProp & PJDev due to warrant conversion, as well as their earning records.

So I will do a rough calculation again on the "fair value" of OSKH using the old boring PE method.

Currently OSKH has 950.96mil issued & paid-up shares.

Its major shareholders (OLH & others) will definitely acquire:
  • 177.64mil shares (~73.0%) of OSKProp shares by issuing 177.64mil new OSKH shares
  • 143.36mil shares (~31.7%) of PJDev shares by issuing 114.69mil new OSKH shares
So, after the acquisition by major shareholders, total OSKH shares will increase to 1,243mil.

OSKH offers to acquire the remaining shares in both OSKProp & PJDev from minority shareholders, by either share exchange or cash. I assume that no more OSKP & PJDev warrants will be converted to respective mother shares after this.

OSKH will:
  • Offer to acquire ~71mil OSKProp shares for RM1.95/share or exchange 1 OSKProp share for 1 OSKH share.
  • Offer to acquire ~315mil PJDev shares for RM1.56/share or exchange 5 PJDev share for 4 OSKH shares
If all minority shareholders of OSKProp & PJDev take the offer and choose OSKH shares over cash, then OSKH total shares will increase to 1,243 + 71 + 252 = 1,566mil shares.

Besides, there will be another 237.7mil new OSKH warrants (4:1) for existing OSKH shareholders.

Without including the future dilution from warrant, OSKH's paid-up shares might increase by 65% after the corporate exercise.

       Paragon (OSKP)

After OSKProp and PJDev are included into OSKH, OSKH will be a prominent property developer in the country.

Base on current earning trend, for calendar year 2015, OSKH, OSKProp & PJDev might be able to produce a guesstimated PATAMI of RM200mil, RM120mil & RM120mil respectively, with a total of RM440mil.

Thus, if all current OSKProp & PJDev shares are converted to OSKH's shares, guesstimated EPS for the enlarged OSKH will be 28sen (440/1566). 

If we give OSKH a more conservative PE ratio of 8x, target price will be RM2.24. If PE is 10x, target price will be RM2.80.

This does not include the 15sen special cash dividend for OSKH existing shareholders. If it is included, then target price can be adjusted to between RM2.39 - RM2.95.

Again, this is still yet to include 1 "free warrant" for every 4 OSKH shares. Though warrant detail is not fixed yet, I think its exercise price is likely RM2 or slightly more than that. So there will probably be a 24sen to 80sen "profit" for each OSKH warrant held.

What if not all OSKProp & PJDev shareholders want to convert their shares to OSKH shares? In this case, both total OSKH shares and guesstimated future earning will decrease. It is hard to predict but overall EPS might not differ too much from 28sen calculated earlier.

If ALL OSKProp & PJDev shareholders do not want to convert their shares to new OSKH shares, guesstimated 2015 EPS for OSKH will decrease to 26sen.

If 50% of OSKProp & PJDev shareholders opt for OSKH shares exchange, then guesstimated 2015 EPS for OSKH will be about 27sen.

Nevertheless, the 237.7mil new OSKH warrant-C will cause a dilution of at least 15% in the future.

*All the figures here are not accurate as they are guesstimated.

       Windmill Upon Hills (PJD)

Without a shadow of a doubt, OSKH will turn into a major property developer with market cap of more than RM3bil which is 2 times higher than Tropicana's RM1.5bil now, though its RHB bank shares will still contribute about half of its net profit.

At current share price of RM2.19, OSKH looks fairly attractive especially with the 15sen special cash dividend and free warrants. Without these "sweets", the overall deal will not be that exciting for most OSKH shareholders I guess.

Anyway, as property sector and banking sector are expected to slow down, will it affect OSK's valuation and earning in the near future?


  1. Hi BD,

    Thanks for ur sharing. Just wondering, from OLH's perspective, what is in it for him in this deal? To unlock the value of OSKProp and PJD and bring both their PEs (historically less than 7x) closer to OSKH's 8 - 10x?

    Just got me curious cz he is well known as a very shrewd investor. The fact that his offer price was below OSKProp and PJD market price (back in Oct 14) got me curious. I mean, why don't he sell his shares in OSKProp and PJD closer to market price? He may get more OSKH in exchange for his OSKProp and PJD shares.

    Just to have a discussion since you write on this. =)

    1. Hi Mah,

      OLH is a seller as well as buyer in this deal. I think he just wants to buy cheap and concentrate in growing OSKH. May be no one really knows his motive...