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Wednesday, October 15, 2014

Stocks with likelihood of Corporate Exercise: HIL Industries (Edge)

HIL Industries Bhd (HIL) is principally involved in producing injection moulding products for the automotive, electrical and consumer industries.

Despite declining revenue and net profit from 2010 to 2013, HIL seems to have rebounded strongly in 2014, with revenue rising 53.7% y-o-y to RM56.6 million in the first half of 2014. Net profit for the six-month period was RM6.7 million, already more than double 2013’s full-year net profit of RM2.8 million.

At 73 sen, HIL is trading at a 28 sen or 27.7% discount to its book value of RM1.01 with trailing 12-month P/E ratio of 21 times. The company has large net cash of RM101.7 million as at 30 June 2014, which translates to 36.8 sen per share — or a significant 50.4% of the current share price.

Free-float for HIL seems to be on the low side, as its two major shareholders, Dalta Industries Sdn Bhd and Datuk Ng Boon Thong @ Ng Thian Hock owns a total of 65.9% of the company.

Should Dalta and Datuk Ng opt to privatise the company, it will cost them nothing in cash. At current prices, it would only cost RM68.9 million to acquire the remaining shares they do not own, all of which can be recouped from the company’s cash on hand. Interestingly, an attempt was made to privatise HIL previously in 2006.

With such a large cash pile and the stock trading well below book value, it remains to be seen if HIL undertakes more value-enhancing acquisitions, returns more cash to shareholders or becomes a potential privatisation candidate.

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