KUALA LUMPUR: Pentamaster Corporation Bhd's plans to privatise its subsidiary Pentamaster International (PIL) with Puga Holdings will likely enhance its earnings potential.
RHB Investment Bank Bhd (RHB Research) said the privatisation will also enable Pentamaster to unlock greater value while leveraging on Achi Capital's expertise to drive PIL's growth.
Puga is a special purpose vehicle backed by Achi Capital.
Pentamaster is acquiring the remaining 36.1 per cent stake not already owned for RM91.8 million, increasing its ownership in PIL to 71 per cent.
"This acquisition will not strain the group's balance sheet, in our view, given its healthy operating cash flow and net cash position of RM466.7 million as of the third quarter of 2024 (Q3 2024).
"The offer price represents a premium of 16.3 per cent over the last traded price of HK$0.80 or 39.7 per cent over the average price for the past six months," it said in a note.
PIL was listed on the Hong Kong Stock Exchange in 2018 to strengthen its presence in the Chinese market and support Pentamaster's customer development.
However, its shares have consistently traded at significantly lower valuations vis-a-vis Pentamaster, rendering the costs and regulatory requirements of maintaining the listing unjustifiable.
"We believe the planned delisting is strategically sound, as the remaining 29 per cent stake will be acquired by Puga, an SPV backed by Achi Capital – a private equity firm specialising in semiconductor and technology investments in China.
"Achi Capital's expertise and network are likely to drive PIL's growth and enhance its market position. Additionally, the proposal allows PIL to streamline operations and reduce compliance costs," it added.
Pentamaster and Puga will be acquiring the remaining 866,000 or 36.1 per cent of PIL's total shares that are not currently owned by the offerors.
Pentamaster will acquire a further 170,400 shares (7.1 per cent of PIL's total shares), increasing its stake to 71 per cent from 63.9 per cent.
Pentamaster acquiring an additional 7.1 per cent stake will result in a 12 per cent increase in its earnings, making the acquisition earnings-accretive.
RHB Research maintained its 'Buy' call on the stock with a higher target price of RM5.12.