@iknownuts, I was not among the 40 analysts and fund managers who attended the briefing by Daibochi on 25 Feb 2019. I am also not an employee or former staff of Daibochi, and I do not have any insider info. I got to know this info from an update report written by Nigel Foo, the CIMB analyst then who covered this stock. An extract of the report is reproduced below:

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4Q18 briefing highlights
● Daibochi’s 4Q18 results briefing was led by Managing Director Thomas Lim, Executive Director Low Jin Wei and CFO Tan Gaik Hong. Around 40 analysts and fund managers attended the briefing, similar to its 3Q18 results briefing. We believe investors are interested in the potential synergies with its new major shareholder Scientex (SCI MK). Scientex owns 42.4% stake in Daibochi and is undertaking a mandatory takeover for the remaining Daibochi shares not owned by Scientex.

Daibochi’s directors proposed to reward senior management
● One year ago, a European company was negotiating to acquire a majority stake in Daibochi. To allay senior management’s job security concerns with the emergence of a potential new major shareholder, Daibochi’s board of directors agreed to reward its senior management RM4.9m if there was a takeover of the company. Negotiations with the European company failed last year.
● However, in Nov 2018, Scientex Bhd proposed to buy a 42.4% stake in Daibochi, which led to a mandatory takeover of the remaining Daibochi shares not owned by Scientex. This led to Daibochi giving its senior management the RM4.9m reward, recognised as M&A costs in the 4Q18 results, it said.
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Posted by iknownuts > Sep 30, 2021 10:26 PM | Report Abuse

@dragon328 i agree with what you said. This is just me thinking out aloud:

- if what you said re this 4.86m being paid by daibochi to snr management is true, it was done on or before 31/12/18. Scientex completed the share sale agreement on 19/3/19. So this was paid by daibochi to their management before scientx came into the picture. Meaning, the ex shareholders of daibochi (which was also the main decision makers in daibochi then) sanctioned this payout, and effectively screwed the shareholders of diabochi?

- as we all know when we sell a business, or even a normal property transaction, the seller always pay commission to a middleman/agent. Scientex bought daibochi shares from the ex shareholders in 2019 at RM222,500,425.60. Assuming a standard 2% commission, this equates to rm4.45m. Assuming other costs of legal, IA fees etc etc of 400k, could this be the “m&a” fee of rm4.86m you mentioned earlier? If this is true,why are the ex shareholders not paying out from their pocket, but instead from the books of daibochi?

A good bonus could be rewarded to the senior management for a job well done in integrating MPP and delivering the revenue & profits growth, and possibly so for expanding the capacity by 60% within budget and delivering another wave of revenue & profit growth in next few quarters.

But it should have not been rewarded for selling the company controlling stakes to Scientex at RM1.60 in 2019 then, and now for helping Scientex to privatise it at again another sub-par offer price.

@iknownuts, yes the reward payment of RM4.86m was mentioned in this bursa announcement.

That reward payment (which was labelled as M&A transaction cost) was questioned by fund managers during the result briefing on 25 Feb 2019 attended by 40 analysts and fund managers. Such reward was rather unusual to the senior management of a company for selling the company controlling stakes at way below market price. That payment effectively dragged Daibochi into a loss for that quarter. What an outrage to Daibochi shareholders then.



Posted by iknownuts > Sep 30, 2021 4:35 PM | Report Abuse

@dragon328 are u referring to this announcement when u say Rm4.9m was paid to snr mng?

https://www.bursamalaysia.com/market_information/announcements/company...

Posted by dragon328 > Sep 30, 2021 3:24 PM | Report Abuse

The current privatisation offer from Scientex is not doing any good to Daibochi nor its shareholders.

Recap that the senior management of Daibochi was rewarded with RM4.9 million for making through the acquisition of controlling stakes by Scientex in 2019.

The current privatisation offer from Scientex is not doing any good to Daibochi nor its shareholders.

Recap that the senior management of Daibochi was rewarded with RM4.9 million for making through the acquisition of controlling stakes by Scientex in 2019.

As anti_colonialists and Investor420 seem to be speaking for Scientex, can you both please reveal to us how much reward will be paid to the senior management of Daibochi or parties in concert for making this privatisation deal through?

Please make sure any of such reward money should come from Scientex, and not charged to the accounts of Daibochi. It is a complete waste of money and time to Daibochi for such a non-sense privatisation offer to appear and drag on.

As shareholoders of Daibochi, we would be grateful for Scientex to withdraw its offer soonest and maintain the listing status of Daibochi.

No shareholder here needs Mr. Lim to bail out. Daibochi was doing just fine without Scientex offering to privatise it.

I am not sure what your intention here is. I am just a minority shareholder of Daibochi and have been tracking this great company for years. Apollo does not need to place any mole here to sway investors' opinion, the fund is in good hands of Claire who had invested in Daibochi way before Scientex started big on its stretchable film business.

I just want to stay invested in Daibochi and ride on its expansion plan. Scientex is trying to get everyoeg off the plane with such a below-par offer. I cannot possibly influence other big investors by posting some comments here. The fact is that many others feel the same way as me, and not selling at this unfair offer price. As I write, some other big investors are queuing big buy volumes at RM2.71. I wish I had the capital to buy so much.



Posted by anti_colonialists > Sep 29, 2021 9:55 PM | Report Abuse

@dragon328, since you said "nobody is saying Mr. Lim cheating his shareholders", then is it possible that Mr. Lim is bailing out shareholders and trying to bring a win-win deal? As @Investor420 said "I believe under PJ Lim, it’s for the greater good, or Scientex wouldn’t have this run for the past 20 years".

The difference between both of your opinions, one seeing the world with broken lens and being taken for a ride, the other a level headed investor that trusts in a 20 year performance.

Back to Daibochi profit, how did RM20 million extra profit appear magically? @dragon328, your post trying to discredit @Investor420, saying there was no improvement under Scientex, does not make sense, and raises a question similar to @Investmon's concern of moles.

Are you one of Apollo's hired moles trying to create negative stories to sway the opinion of shareholders?

As observatory correctly pointed out, the increase in revenue and profits of Daibochi from 1QFY2020 onwards was clearly from the contribution of MPP acquired in August 2019.

A summary of Daibochi financials is listed below:

Quarter Revenue EBITDA Net Profit (RM million)
1Q2018 104.7 12.6 6.4
2Q2018 106.4 12.8 6.8
3Q2018 109.2 10.8 7.9
4Q2018 110.5 8.1 4.3
5Q2019 110.8 9.5 4.3
7Q2019(Jul) 123.3 12.1 7.6 (4 months as FY changed to July)
1Q2020 152.6 22.3 11.8 (first quarter after MPP)
2Q2020 159.0 26.4 14.6
3Q2020 152.0 22.5 11.9
4Q2020 155.8 23.6 15.2
1Q2021 156.7 23.3 12.8
2Q2021
3Q2021 150.1 18.9 10.3
4Q2021 133.7 10.9 8.9

In a note after the acquisition of MPP, the management indicated that Daibochi revenue was expected to increase to RM600 million and EBITDA to RM70 million within 1 year of integrating MPP. Credits to the management to have achieved what was indicated in Aug 2019. Possibly some credits to Scientex too as a big brother backer to Daibochi for this acquisition.

MPP financials were not bad with revenue of RM131.7m and net profit of RM7.0m in 2018, and revenue of RM128.8m and net profit of RM7.8m in 2017. The revenue increase for Daibochi from RM430.8m in FY2018 to RM619.4m in FY2020 was RM188.6m, way higher than the normal annual revenue of MPP before integration. EBITDA jumped by a larger quantum of 114% from RM44.3m in FY2018 to RM94.8m in FY2020 simply shows the cost synergies from integration (in areas such as bulk purchase of raw materials and sharing of marketing and distribution costs as per CIMB analyst report on 26 Sep 2019).

CIMN analyst then Ivy Ng in her report on Daibochi 7Q2019 quarterly results reported that since Scientex took over in Mar 2019, Daibochi management has managed to reduce inventory from RM93.9m in end Mar 2019 to RM62.4m as at end July 2019. That was probably one area where Scientex has helped Daibochi to improve on its working capitals.

In the same report, Ivy NG reported that Daibochi had been working with a domestic MNC F&B company on environmentally firendly packaging materials that do not use polyester. Then she reported on 6 Dec 2019 that Daibochi had commercialised its first sustainable mono-material laminate packaging material (MNL) for a major domestic beverage customer in Q1FY2020. Daibochi started using this new 3-layer MNL (polypropylene-based) compared to the earlier complex 5-layer structure and expected to secure more customers using this new MNL material by 4QFY2020. To me this is good reporting by Ivy Ng and good efforts by the management to develop new environmental friendly products.

Now, anti_colonialists, please highlight to me where else Scientex has possibly helped Daibochi to improve on its performance.

CIMB analyst Nigel Foo in his report dated 15 May 2019 reported management as saying that the potential synergies to be derived from integration into Scientex are:
1) lower material costs due to economy of scales and central buying at Scientex
2) improved efficieny at Daibochi's two factories in Ayer Keroh and Jasin Melaka, and
3) reduction in wastages at Daibochi's factories

Looking at the declining EBITDA margin of Daibochi in its quarterly results from Q1FY2020 to Q4FY2021, I do not see much cost saving in raw material procurement with Scientex, nor improved efficiency at its factories. Please prove us wrong here.




Posted by anti_colonialists > Sep 29, 2021 9:55 PM | Report Abuse

Agree with @Investor420 that Daibochi performance improved a lot under Scientex.

I am just an observer here to enjoy good argument. @dragon328 claimed "I do not really see any improvement in Daibochi operations since Scientex took over control in 2019." Your claim doesn't make sense.

Beg to differ. For 5 years, 2013 to 2017, Daibochi profit gone no where up and down RM23 million to RM27 million. No growth for 5 years! After Scientex came in, look, net profit now consistently RM47 million for 2 years!.

In other words, Scientex took a 0 growth company, gave shareholders 70% net profit growth in 1 year. Now offer to buy over at much higher than original 2019 offer. Offer price is also around highest price for last 1 year.

Haha his image is already tarnished anyway.

I thought he was pretty sure of no revised offer from Scientex when reading the headlines of his report, until I saw this sentence.

I am afraid he might need to shoot a bullet on his own foot again in 2 weeks time.

I am pretty sure now Scientex will revise up the offer price as it will not be contented with just additional 5%-7% stakes from this privatisation exercise. I remember Scientex did offer the offer price of RM1.60 for months after it acquired the controlling block from Daibochi's original major shareholder but did not receive much acceptance. Would it want to go through the same long but unfruitful process again for another few months?

It will be disruptive to the daily operations and expansion efforts of Daibochi while such a privatisation attempt is prolonged.

@observatory, well said about the liquidity issue below.

I agree with you that it will not make any difference in terms of liquidity for retail investors of Daibochi even Scientex raises its stakes to 70% by end of the offer period, compared to a stake of 61.88% before the offer.

I do not mind for Scientex to raise its stakes in Daibochi as much as it likes but I just hope that it will maintain the listing status of Daibochi even with 25% - 30% free floats. After the offer period ends, Scientex please withdraw the privatisation offer and let the market decides the fair value of Daibochi.

If it drops back to RM2.20-2.30 level, then everybody including Scientex would be free to add more positions. If it goes past RM3.00 then it simply indicates the worth of Daibochi and makes many shareholders (including Scientex that will have higher stakes then) happy.



Supporting Scientex's offer, the report has added warning that "Even if Scientex does not manage to attain 90% of Daibochi’s shares, the former will not look to comply with Bursa Malaysia’s public shareholding spread, and investors could be stuck with illiquid shares"
(Note: Low liquidity concerns are more for the institution clients. Typical retail investors don't hold millions of shares and therefore can get in/ out without moving the share price)

But the analyst failed to notice that after two weeks of offer, until yesterday Scientex only managed to get a miserable 4.47% shares, increasing its holding from 61.88% to a mere 66.35%.

Besides, if the analyst is concerned about the low liquidity, why would he has recommend a buy call just three months ago while the public float only differ by a few percent?

As I expected, CIMB analyst lowered its target price for Daibochi to RM2.70 very conveniently in his update report on Q4 results.

However, what bewilders me is his change of stand from a supposingly neutral position to a strong advice for investors to take the offer from Scientex. What has changed in Daibochi's fundamentals in past few weeks that renders a drastic change in his recommendation from a high conviction Buy call to an Accept Offer call? It is a big slap on his own face. If Scientex raises the offer price next week, would he change his projections and target price again?

He did not bother analsying the drop in EBITDA margin nor updating the cash flow projections with latest capex spent, but just the easy route of asking clients to accept the offer. Lazy fellow.

Nobody is saying Mr. Lim cheating his shareholders. It is in fact a remarkable achievement of him building up Scientex in the past 20 years.

The key point here is that the privatisation offer price is too low and not fair to Daibochi shareholders. Time will tell if Scientex will succeed in this privatisation exercise, but looking at the declining volumes of shares it managed to gather from the open market in past few days, I expect it to fail.

The fact that other funds like Apollo and Samarang are increasing their stakes in Daibochi at and beyond RM2.70 simply shows the increasing difficulty of Scientex getting even close to 90% stakes at this price.

To me, if Mr. Lim sees good value and potential of Daibochi, he should revise up the offer price to a better valuation of RM3.00-3.30 level to get to a win-win situation with the stakeholders. If funds like Apollo and Samarang are willing to part with their long term holdings of Daibochi shares, then he will know he has got a fair valuation.

In running the business over long term, he cannot win it all. He will not be able to grow the company if there are many dissenting shareholders and management personnel at the subsidiaries. He should be using the might of Scientex to help Daibochi in negotiating good deals with its MNC customers, and not taking advantage over minority shareholders.

I do not really see any improvement in Daibochi operations since Scientex took over control in 2019. @Investor420, please highlight the areas of improvement to us.

Quarterly revenue has been around RM150 million in past few quarters and EBITDA margin around 12%-13% since 2019, dropping to just 10% in the latest Q4. Scientex has been supplying the raw materials to Daibochi before and after it acquired a controlling stake in the latter, but we do not see much synergy nor cost savings achieved by Daibochi since 2019, some more incurring forex loss over RM2.3 million in this Q4.

If you are a shareholder of Scientex, you will naturally argue that the privatisation offer is good and strategic for Scientex. But how would it be more strategic for Scientex in wanting to own 100% rather than 62%?

If Scientex is not able to improve Daibochi financial performance while owning 62% of its stakes, what difference would it make by owning 100%?

It would be good for Scientex only if Mr. Lim sees huge potential in Daibochi itself and the privatisation offer at RM2.70 per share would be earnings accretive to Scientex.

We do not dispute the great stewardship of Mr. Lim in making Scientex a successful company. But we just hope that in driving the success of Scientex, he does not undermine the value of its subsidiary and the effort of the management team, as well as creating many dissenting shareholders. It is not good for Scientex and Daibochi in the long run.



Posted by Investor420 > Sep 28, 2021 5:13 PM | Report Abuse

Lol, so much fuss within the ikan bilis here, just sell daibochi and switch to Scientex, then you own full daibochi and Scientex. The funds will have liquidity issue to swap but not you for you all. Pretty sure the idea behind the privatization is more strategic rather playing the cronies privatize low, relist high trick. All of you here arguing to have a higher valuation seems the be the petty one imo.

Expect CIMB to lower its target price for Daibochi further to RM2.70 or below tomorrow after this "managedly" poor quarterly result.

The idea is to encourage more retailers to sell their shares to Scientex at RM2.70 but I do not see any big panicked selling yet.

It came as no surprise that Daibochi did not declare a final dividend. Naturally it will keep all the cash until Scientex accumulates enough of its shares and its capex plan is complete.


Posted by Syndicates > Sep 28, 2021 1:19 PM | Report Abuse

where is your promised at least 30% of income as dividend?

As expected Daibochi reported a poor Q4 result but it is not as bad as feared. Revenue dropped about 10% q-on-q and gross profit fell by a larger percentage.

Adding back depreciation & amortisation of RM6.2m and forex loss of RM2.3m, EBITDA was not too bad at RM13.6 million though EBITDA margin still dropped from typical 12%-13% to 10%.

Post-tax operating cash flows for the whole year was still commendable for a wash-out year at about RM70 million before working capital changes and capex. Capex spent plus deposits made totalled RM64 million, about 2/3 of its planned RM100m expansion.

The ongoing privatisation attempt by Scientex may have disrupted Daibochi's operations and expansion plan, in the way that the target company might not be allowed to show any big improvement in cost optimisation (raw material supply by Scientex, forex management, etc.) and be forced to push back any expansion effort in acquiring new customers. If this privatisation offer drags on for another few months, then we can reasonably expect the Q1 FY2022 result of Daibochi to be muted as well.

It is a solid company with earnings growth and margin expansion over next few quarters as more economic sectors reopen and cost optimisation efforts continue to bear fruits.

Maintain my first target price at RM7.00 which may be achieved by year end as more analysts upgrade and more fund managers see value in this counter as its market cap exceeds RM800 million.

Perhaps I will go and grab a copy of The Edge tomorrow just to see this article if you say it is a more balanced reporting.

Anyway looking at the drying volumes in past 2 days, I do not think Scientex will even get its stakes in Daibochi up to 75% by the end of the 21 day offer period.

Will continue sitting pretty to wait for Daibochi next quarterly results (not much to expect from the July one but Oct one will look interesting) and the next move of Scientex after it fails in its illy-planned privatisation attempt.

Good observation.

Scientex is stuck for now with <70% stakes in Daibochi. What is it going to do next?

I think we will have to wait till Daibochi quarterly result is out next week to gauge what will happen next.

I maintain my projections that DKSH should reach RM7.00 in 6 months and even RM10.00 in blue sky scenarios within 2 years.

With major shareholders holding over 75% stakes, DKSH is itself a prime target for privatisation. Pegging a FY2021 PER of 10x, I expect a take-over price not less than RM6.00. DCF based valuation would take it to beyond RM7.00 for any meaningful acceptance.

No stock can keep rising forever. I did warn before that DKSH had risen too fast after the result announcement and profit taking would take place soon.

DKSH had risen for 10 days or so from RM3.00 to a peak of RM4.85 with total traded volume in excess of 15 million shares in the 2-week period. It then goes on a profit taking phase that runs into its 11th day now with about 5 million shares traded so far.

It is normal for a stock to give up 50% to 68% of the gain especially the gain was achieved within a short period of time. I see support levels at RM3.90 then stronger one at RM3.60.

Nothing has changed in its fundamentals, it is just that profit taking is flushing out weak holders who are impatient enough to hold for 2-6 months and enticed to take quick profit after the recent strong gains.

wow such a good bargain to load up more. A happy day indeed.

@observatory, thanks for the article by Claire Barnes of Apollo. It clearly reinforces our view that Scientex's offer price is too low.

"It has chosen to attempt privatisation, not by offering a compelling price to encourage willing sellers, but by emphasizing that companies can be delisted and it would do nothing to prevent this - although with this offer it seems unlikely to reach the level of voluntary acceptance required for compulsory acquisition. Fear can feed on itself, so investors should not relay uncritically the storyline that delisting is inevitable.¹ "

@Multibagger, many thanks for the extracts from the Notice of Offer.

Typically takeover offfers have provisions for revising the offer price. It does not make sense to keep the offer for too long if it has become clear that the offer price is too low with most retail investors not selling but other substantial shareholders adding their positions, i.e. the offeror will fail anyway.

Scientex should either raise the offer price and wrap up the privatisation soonest or just withdraw the takeover offer and let the market to determine the fair value of Daibochi share price. If it drops back then everyone is free to add position to participate in its long term growth prospects. If it rises then it is again free market movement to determine how high it is worth then.

I do not bother buying or reading The Edge Weekly journals anymore as I find most of the articles inside are just recycled materials from here and there, same as equity analysts from Kenanga and CIMB.

Why use a EV/EBITDA multiple of 12x?? bcoz it fits well into Scientex's offer price mah.

The big boy is exercising its muscles onto equity analysts and now even investment journalists to help swaying retail investors to sell off Daibochi to them at the offer price.

Actually all these are totally unnecessary small tricks, getting analysts to produce reports to their advantage. Nowadays even small retail investors are knowledgable enough to be able to tell which analyst's report is unbiased and which one is just made up to suit the big boy.

What Scientex ought to do is just raise the offer price to a more reasonable level eg. RM3.30 then it would get the provatisation done in 2 weeks and get back to real work in improving the company operations, rather than spending endless time trying to take advantage of retail investors with all these trivial little tricks with analysts and media. It will earn no respect from all parties and end up in vain.

Just look up to KLK move - just offer a good fair price once and got control of IJM Plantation within a month, now reaping the full benefits of high palm oil prices from all the plantation output of IJM Plantation by integrating it early with KLK's own operations. As an industry leader, KLK boss truly shows the color of a statesmanship and has earned respects of many from this take-over exercise.

Scientex as an industry leader too in the plastic packaging industry should not be distracted by any unnecessary corporate hiccups that may drag out for months, which would tarnish its reputation and make it lose confidence from even Daibochi's own management / founder and long term investors by undermining the valuation of the latter. Any such prolonged privatisation exercise will surely affect the smooth operation of Daibochi management in completing its expansion plan and efforts in getting more international customers.

I strongly advocate for Scientex to raise the offer price immediately, not after this 21 day offer period, to above RM3.00 for Daibochi mother shares and RM0.60 for daibochi-wb and get this exercise out of the way asap so that Daibochi could focus on its expansion plans and deliver more values to its shareholders.

As to what small investors like us can do now, I suggest just holding on to what we have. We have time to monitor the situation in coming days to see how many more shares of Daibochi will be mopped by Scientex and other substantial shareholders. We can decide on the last day of offer if we want to sell our holdings in the open market at RM2.70 and RM0.32.

As we can see now, other big players have crowded off Scientex in the buy orders at RM2.70 for mother and RM0.32 for wb, with more desperate ones nimbling at RM2.71 and RM0.325 forcing Scientex nothing much to do about.

I do not expect this upcoming July quarterly result of Daibochi to be exceptionally good, as Scientex privatisation effort is going on.

But I also do not think that they could alter the results too much just to suit into the ongoing privatisation effort.

Key things to look out for in the upcoming results will be any revenue growth and additional capex spent to gauge the management effort to get more customers for its new capacity and the ongoing capex plan of RM100m to raise capacity by 60%.

NO need to read too much into this qtrly earnings which might be easily skewed to fit major shareholders' purposes.

Daibochi is about to jump on a new growth phase having spent half of the planned RM100m capex expansion to increase capacity by 60%. Its share price and earnings have yet to reflect on this potential.

What Scientex is doing effectively force all minority shareholders to get off the plane before it takes off. Minority shareholders of Daibochi have been waiting for over 2 years since its acquisition of Mega Printing & Packaging in May 2019 to see the synergies and earnings growth that have yet to materialise.

This year is supposed to be the year of reckoning after spending RM125m for acquiring MPP and another RM100m on expansion. Scientex knows it very well so it is taking the advantage of weak share prices in August after a weak April qtrly result to launch the take over.

If the offer price is reasonably high above RM3.00 then it would have been a little reward for minority shareholders of Daibochi for approving the MPP acquisition and the huge capex expansion before seeing the growth in earnings and share price. But the low offer price basically deprives off the benefits of explosive earnings growth and share price appreciation of Daibochi from its minority shareholders.

Just look at DKSH. Had DKSH Gmhb the parent company who owns over 70% of the listed entity in Bursa made a privatisation offer at say RM3.60 per share of DKSH (which was trading at about RM3.00) before the announcement of June qtrly result, the minority shareholders of DKSH would have been deprived of the huge share price gain of DKSH after the June qtrly result announcement, which shot up to as high as RM4.85 . Minority shareholders of DKSH had been waiting for over 2 years since its acquisition of Auric Pacific Singapore in 2019 for close to RM500m to release the benefits of the expansion, and now we can see and reap the benefits of holding onto DKSH shares. DKSH is rewarding shareholders with much higher dividends. I would like to see similar case in holding onto Daibochi shares.

The warrant is always a cheaper option to owning mother shares, especially so when Daibochi just crossed the exercise price of RM2.50. Before the privatisation offer by Scientex, my thought was that the risk-and-award of holding Daibochi-wb at 13-15 sen a piece was so much skewed to the upside thinking that Daibochi would be reporting growing earnings in the coming quarters after the capex expansion plan and its Mymnmar plant had returned to operations after workers' strike.

Daibochi would easily test RM2.80-3.00 if this July quarterly result or latest the Oct qtrly shows improvement in additional revenue and earnings growth, just like the case of TGuan and BPplas. Daibochi-wb would be worth at least 30-50 sen without any premium then.

Now this provatisation offer at RM2.70 makes the situation a little trickier. I agree with observatory that there is more of an element of gamble in betting on the warrant rather than mother share. The risk for wb would be for it to drop back to 20 sen or below if Scientex succeeds in privatising Dabochi at RM2.70 or withdraw the offer.

However, when I saw the huge buying orders of over 60 million (far exceeds the total issued shares of 27 million wb) at O.305-0.315, it strikes me that more funds or big players see the opportunity of loading up daibochi-wb as a much cheaper entry to blocking the privatisation effort of Scientex at unreasonable price. As Scientex owns very little (<5% stakes) of daibochi-wb, it opens up opportunities to other funds like Appollo or Samarang to raise stakes in Daibochi by up to 25m or 8% stakes at just 1/9th of the cost of buying the mother shares. They can decide to convert the warrants into ordinary shares as and when required. This is a very capital effective way of blocking Scientex from gathering 90% of the shares it did not own prior to the offer to force a mandatory take-over. These long term funds would not bother much if Daibochi is delisted or not, as they have representative at the company level and would continue getting dividends from Daibochi even unlisted. What they do not want to see is for them to forcefully part with their Daibochi stakes at RM2.70 when Scientex gathers 97.2% ownership of Daibochi.

Those funds holding less than 3% stakes in Daibochi would want to protect their own interests by loading up more wb at a fraction of the cost, so that they do not need to depend on other funds holding more to fight off the low-priced privatisation. If Scientex succeeds, they will not lose by selling all their warrants to Scientex at 32 sen. If Scientex raises offer price to RM3.00 or higher, they make a lot of money from buying wb itself besides getting higher price for their mother stakes. This is the war art of defending by attacking first.

The fact that the buy orders far exceed the total issued shares of wb only shows that there were more than one fund trying to load up the warrants. If volume traded dries up in coming days, it will make them and Scientex more desperate to buy up.

Conclusion is that holding daibochi-wb may have a low risk of dropping back to 20 sen but a higher chance of getting the upside to 62 sen or even 90 sen! It is 30% downside vs 100% - 200% upside. The choice is yours.

Well said, observatory.

Everyday in the past few days, there were over 10m shares of buy orders for Daibochi at 2.68-2.69 and over 60m shares of buy orders for Daibochi-WB at 0.310-0.315. This clearly shows that more funds and big players are trying to grab shares of Daibochi and wb other than Scientex. Scientex will need to eat up shares beyond RM2.70 and wb beyond RM0.32 in order to gather more shares or raise the offer price later to succeed in this privatisation effort.


Posted by observatory > Sep 16, 2021 11:45 AM | Report Abuse

It's up to individual investor's choice. But if you believe it's undervalued, you can have the choice of staying for Scientex to come up with a fair offer later, or staying invested as if nothing has happened.

Of course, as @iknownuts pointed out, there is also the choice of further investing alongside Scientex by topping up at RM2.69 now. I just did that albeit in a small way. The privatization by Scientex has now cleared my remaining uncertainty of Daibochi's value. It will be nice if Scientex offer to buy my stake back at a higher price later. Else I just grow with the company.

The key is, as explained in the previous discussion, it's will be difficult for Scientex to secure 90% with a mere RM2.70 offer. Even assuming they reach 90%, Scientex is still obliged to acquire the remaining shares at RM2.70. The downside is limited for me.

It's misleading to compare Daibochi with CCB on what could happen if privatization fails. Prior to Jardine first announcement in 2020, CCB share price has been declining for years to about RM1.2. CCB is also loss making. Its prospect is bleak after losing the wholesale distributorship of Mercedes Benz vehicles. Yet even CCB could see its share price bid up to 150% higher. Despite the failed privatization, the latest price is still at RM2.2 which is more than 80% higher than 2020 price.

Now compare with Daibochi -- 15 years of non interrupted quarterly profit; CAGR of net profit at about 10% in the last 10 years; growth picking up in the last 5 years (check out annual report); and RM100 million for 60% capacity expansion in FY20-21 is about to bear fruits. With or without the privatization offer the earning prospect is as good as before. Over time share price will follow earnings.

Besides the mere RM2.70 offer has reduced whatever little downside of a failed privatization. Assuming the exercise fails, the share price probably retreats to pre-offer time of about RM2.4. This was the level Samarang topped up in Apr.

One key difference is now investors know that Scientex wants to get the whole pie for itself at RM2.70. When price drops back to RM2.4 what should a rational investor do?

Glad to see TA Securities appointed as independent advisor by Daibochi for this privatisation offer, and not CIMB Securities who happens to have this analyst with weak conviction and no confidence in what himself was writing before the offer.


Posted by dragon328 > Sep 15, 2021 12:24 AM | Report Abuse X

An analyst may have many considerations, self interests is one, priviledged cliets' demand is another. He was the only equity analyst covering this stock (maybe another one from MIDF but I have not seen any update from MIDF yet) and should have been well aware of the sensitivitiy of his revised target price.

He raised the tp for Daibochi by 52% from RM2.66 to RM4.04 on 18 Sept 2020 "due to its rousing growth potential after its capacity expansion". After Daibochi reported a weak Q3 result on 23 June 2021, he then lowered the tp by only 5% to RM3.83, admitting that he should have been aware that workers' strike in Mymnmar would be a drag on its sales. What has since changed on Daibochi fundamentals that makes him cutting tp by 28% to RM2.75? Just because Scientex made a low priced offer, he has to throw away all his own assumptions and projections to get inline with the offer or what markets perceive it to be? What kind of professionalism is that?

What you can do is to hold on to your Daibochi shares and not to sell it to Scientex at RM2.69 at open market. Scientex has managed to collect over 7 million shares of Daibochi mother shares on Day 1 of privatisation offer and less than 1 million on Day 2. It will be a long long way before Scientex can collect 60 million to cross 90% stakes for delisting.

I am confident Scientex will not succeed in this privatisation effort at RM2.70 offer price. It will have to raise it to over RM3.00 later on if it is not able to collect enough from the open market and acceptance from retail investors. I do not expect the funds holding Daibochi will accept the offer at 2.70.

It is understandable for Scientex to make the first offer at a low price so that it can collect as much as possible at 2.69-2.70 in the open market during this 21 day offer period, knowing very well that the offer price is too low and will not gather much acceptance. It is in fact very smart of Scientex to make this offer with every 1% extra shares gathered at 2.69-2.70 saving at least RM1.0 million of privatisation costs.

I reckon that Scientex will need to raise the offer price to RM3.30 for Daibochi mother share and RM0.90 for Daibochi-WB for funds and more retail investors to bite.

It has about 62% stakes of Daibochi before the offer and has gathered close to 8 million shares in first 2 days of privatisation offer. I estimate that Scientex may be able to get some 15-20 million shares from the open market during the 21 day offer period, which will bring its stakes to 68-70%.

To get another 20% stakes or 66 million shares, Scientex would just need to spend extra RM39 million to raise the offer price to RM3.30 and complete this exercise in 2 weeks. Scientex would get this money back from this extra 28% stakes of Daibochi in few months just from the strong operating cash flows of the latter. What for to drag it months or years with low liquidity and non-compliance of listing requirements?

Just be a bit more generous in the offer price and it will save a lot of time and distress, also gaining trust and applaud from Daibochi's management and shareholders as well as Scientex's own public shareholders (for fast and determined corporate exercise by Scientex and not dragging things for months/years on petty valuation issues).

Lets forget about the rubbish analyst report and focus on fundamentals of Daibochi vs the offer price.

I pay more attention to its operational cash flows rather than accounting profits as I believe it is a better measure of how strong a company will be able to pay out dividends that ultimately determine how high the share price may be.

From Daibochi 2021 Q3 quarterly report, it reported an operating cash flow of RM66.83m before working capital changes, and free cash flows of RM62m after tax and interest payments (before capex). Annualising it will give us RM83m of free cash flows.

Given that it had spent capex of RM46m as of 30 April 2021, its expansion plan may well be on schedule for completion by Q4 ended July 2021. Assuming that Daibochi management will be able to secure new orders for 80% of its new capacity within two years, I project that free cash flows would grow up by 50% to RM124m by FY2023. That would be almost 38 sen of free cash flows a year.

Accounting profit will be much lower due to depreciation and amortisation line which will be over RM30m and accounting tax line which will be over RM20m. Therefore dividends will be restrained by net profit of the year or about 23-25 sen per share.

As Daibochi serves mostly MNCs and local prominent F&B brands, it would be justifiable to peg it to dividend yields of consumer food giants like Nestle which has a 10-year mean yield of 3.1%. That would value Daibochi at 0.23/3.1% = RM7.42 !!

One would then argue that Daibochi is much smaller than Nestle and more volatile in revenue or earnings. I would like to peg it to the highest yield given by any REIT listed in Bursa, which is around 7.0%. That would still value Daibochi at 0.23/7.0% = RM3.29.

Even its parent Scientex only gives out a low dividend yield of 2% only, Thong Guan at 2.5%. Daibochi at RM2.70 would yield close to 9%. Where else could you find such a bargain?

In DKSH but it has limit up after a sterling qtrly result. In YTLREIT but need to wait for hotels to return back to normal business. In Astro which is losing subscribers every year still.

Only in Daibochi now which is about to take off well from its well planned expansion. Scientex knows it better than any of us here.

An analyst may have many considerations, self interests is one, priviledged cliets' demand is another. He was the only equity analyst covering this stock (maybe another one from MIDF but I have not seen any update from MIDF yet) and should have been well aware of the sensitivitiy of his revised target price.

He raised the tp for Daibochi by 52% from RM2.66 to RM4.04 on 18 Sept 2020 "due to its rousing growth potential after its capacity expansion". After Daibochi reported a weak Q3 result on 23 June 2021, he then lowered the tp by only 5% to RM3.83, admitting that he should have been aware that workers' strike in Mymnmar would be a drag on its sales. What has since changed on Daibochi fundamentals that makes him cutting tp by 28% to RM2.75? Just because Scientex made a low priced offer, he has to throw away all his own assumptions and projections to get inline with the offer or what markets perceive it to be? What kind of professionalism is that?




Posted by observatory > Sep 14, 2021 5:42 PM | Report Abuse

@dragon328, analysts have many considerations.

For example, if he keeps the TP at RM3.83, he may be concerned that it looks contradictory when advising clients to take up the offer at RM2.70. So may be it's safer to set a lower TP first. Words like business adjustment processes, which nobody can understand what it means, can be used to justify the new TP.

For me a better way to handle this is to work out the TP based on true business fundamentals. Later on if the analyst wants to urge his clients to take up the offer, he could argue for it based on another set of reasons like liquidity issue or delisting lists. This way will be far more transparent.

But what is important is, based on pre-announcement consensus, the offer price represents a FY22 forward PE of about 14 times, as compared to past 5 year average of 20.5X and 10 year average of 18.6X.

Shareholders will have to judge for themselves
1. Is 14X forward PE a good enough offer?
2. Among Apollo, Samarang and Public, how likely will at least two of them also agree that the offer is good enough, and thereby parting their shares to clear the way for Scientex to acquire above 90%?
3. Even if 2 of the 3 funds above sell out, how likely will some other deep pocket investors/ institutions increase their stake to stop Scientex from reaching 90% without offering a higher price later?

I do not understand why he believed "there will be a lot of adjustments needed in Daibochi's cost structures and business practices to comply with its end clients' needs".

This is not the first time Daibochi is doing business with big MNC or local prominent brands. Why suddenly is there a need to adjust so many things in Daibochi's cost structures or business practices?

Is it due to the entry of Scientex as the major shareholder of Daibochi that requires so many changes in Daibochi's operations?

And I do not understand why suddenly the EBITDA margin of Daibochi would drop from over 15% in FY2021 to just 11% for FY2022 in his latest projections. Wasn't it Scientex who said that "taking Daibochi would also put it in a better position to meet the stringent requirements of multinationals and local prominent brands..."? Why would taking it private then destruct its EBITDA margin?

This clearly shows that this CIMB analyst has no integrity and firm conviction on his own analysis, easily influenced by the latest offer by Scientex.

He lowered revenue projections for Daibochi by 5%/0.5% for FY2022/2023 but very conveniently reduced projected net profit by a much larger 34%/21% for FY2022/2023 in order to arrive at a tp of 2.75 close enough to the offer price by Scientex.

The reason cited for lower earnings projections was higher overheads during the business adjustment processes. I doubt he had much idea of what he himself wrote about on the so called business adjustment processes, like "investing in risk mitigation factors for its facilities". What the fak!

I think CIMB Research team really needs to strengthen the governance of its equity research analysts to prevent another Marcus Chan (the CIMB analyst who covered Hevea and got fired for producing biased reports) from misleading retail investors for self interests.

These are exactly the attributes that make Daibochi attractive. Its long term and stable MNC client base is much much valuable than selling just commoditiy-like stretchable films and affordable housing.


Posted by observatory > Sep 14, 2021 12:02 PM | Report Abuse

Among the values of Daibochi is its stable MC client base. Its MNC clients include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. They are in the stable consumer staple industry. Daibochi has built up the base before Scientex's acquistion in 2019. Otherwise why would Scientex venture downstream in 2019 to acquire this client?

Another point is Daibochi has recently acquired Mega. This has complimented its portfolio as Mega caters to non-MNC clients.

Personally I prefer Daibochi to Scientex despite Scientex's share price growth in the past. I see the downstream converter business as the more valuable part of Scientex's portfolio.

Besides I like simple business. Investing in Scientex mean buying not just its plastic packaging but also the property business too. I would rather hold Daibochi and separately investing in a pure property play of my choice.

Of course, we minority shareholders of Daibochi has no financial power to fight against the taiko Scientex. What we are asking is for a higher offer price that will reflect the fair value of a great company at the edge of explosive earnings growth.

Scientex already made many minority shareholders of Daibochi suffer like hell in 2019 when it offerred a pathetic RM1.60 to take over Daibochi which was trading at RM2.30-2.50.

Now at least the offer price of RM2.70 is above the average market price in past weeks but is too low for minority shareholders who have been holding daibochi waiting to see the benefits of growing earnings in next 2 years.

Sell Daibochi and buy Scientex?? Easy way out? Hello, Scientex is trading at PER of over 15x and derives half of earnings from property development. Scientex earnings growth for next 2 years will be no way near that of Daibochi. Furthermore, Scientex share price has gone up over 80% since 2019.

There is no sincerity in this take over offer from Scientex. So petty, only good at playing tricks to depress minority shareholders, e.g. getting CIMB analyst to immediately revise target price from RM3.85 to 2.75, loading more costs to the upcoming quarterly result of Daibochi, etc.

Daibochi has not been doing well even after Scientex took over in 2019. Its earnings and share price have been depressed in past few quarters though other plastic packaging companies like TGuan and BPPlas have made tonnes of profits growth. Why was that so?

It was all because Scientex had the intention to privatise Daibochi so it could not let Daibochi to report good earnings until it launched the takeover offer.

If Daibochi is not doing well, why would Scientex want to raise its stakes at RM2.70, a much higher price than its original entry price of RM1.60? Because it knows very well Daibochi will see explosive earnings growth in the next few quarters after its capex expansion plan and softening of resin costs.

Not sure what those big holders of Daibochi will do but I am sure that this offer price is too low.

I will not sell it at 2.70 and is prepared to hold on to see the explosive earnings growth of Daibochi in coming quarters. I think this privatisation offer from Scientex will fail and Daibochi will remain listed after 21 days.

Public Mutual holds 7.32% and Samarang LLP holds 5.05% in Daibochi.

These two funds are key to blocking the mandatory takeover by Scientex at such an unfair price.

Minority shareholders like us can only hope Scientex does not get acceptance of over 60m shares in Daiboci in these 21 days of offer period for Scientex to increase its stakes to 90% and delist Daibochi.

Only if Scientex gets acceptance to increase its stakes in Daibochi above 90% then only Scientex can delist Daibochi, otherwise it has to maintain its listing status though holding over 75% stakes.

If scientex gets acceptance to increase its stakes in Daibochi to over 97.2% then it can compulsorily force all remaining minority shareholders of Daibochi to sell all shares to it.

The offer is not fair but reasonable.

Why cannot fight? Why do we have to accept the offer if not fair?

Daibochi is the largest flexible plastic packaging company in Malaysia for the F&B industry and has expanded business to Australia and Myanmar. Its earnings are at the edge of flying off after spending over RM50m capex to expand capacity by 60% in past one year. Scientex knows it very well that Daibochi has tremendous potential to scale new highs in new market reach and earnings base, hence the offer to increase its stakes from 61%. Scientex is trying to reap all the benefits of exponential earnings growth of Daibochi by taking it private, as it is eyeing all the projected free cash flows of over RM130m a year from Daibochi by spending RM345m to take it private, getting back all its money within 2.5 years.

should not sell even at RM3.00 to Scientex and don't let Scientex to get over 90% stakes. Hold on for higher offer price above RM3.00 or stay on to reap long term benefits from this great company. In time, it should trade up to CIMB's target price of RM3.83.

This round to RM1.00 easily!!

The offer price of RM2.70 is too low for Daibochi minority shareholders to accept, but it is a bargain price to Scientex to raise its stakes in Daibochi.

Offer price should be raised to at least RM3.30 - 3.50 to get more shares in Daibochi to get to 90% stakes.

Scientex got a controlling stake in Daibochi at rock bottom price of RM1.60 in 2019. Now 2 years on, it is trying to sapu all remaining shares at another bargain price of RM2.70.

The fact that Scientex is willing to offer 68% higher price than its original take over price in just 2 years clearly shows that Scientex sees great value and potential of Daibochi.

But it should offer a price with at least 50% premium to 5-day average market price or RM3.30 per share for Daibochi and RM0.80 per wb to show its sincerity, like what KLK offered to buy over IJM Plantation.

Daibochi is at the tail end of its expansion program to increase capacity by 60%. If it manages to secure enough customers for 80% of the additional capacity, its earnings will increase by 50% within 2 years to 25 sen per share. Operational cash flows will be even stronger at close to 40 sen per share. It would be able to declare dividends up to 25 sen per share every year.

For a dividend yield of 7%, Daibochi should trade above RM3.50.
For a dividend yield of 5%, Daibochi should be worth RM5.00!!

Scientex's offer of RM2.70 per share is way too low. I do not expect many minorities shareholders of Daibochi will accept it.

Samchem has gone past accumulation phase in the past 2 weeks since 19th August with close to 100m shares traded. Some funds or parties have accumulated around 50-60m shares of over 10% stakes just in past 2 weeks. Its share price will fly off from now on.

I think it may test 0.90 with volume around 10m, no need 25m like on 19th Aug, as more investors find it undervalued and will not sell below 0.90.

The reported loss after tax was due to a large deferred taxation item recognised for UK Wessex for the increased corporate tax rate to be effective from 2023. The actual cash tax paid was around RM65m only. In fact, the operational cash flows for the financial year was so strong that YTLPower was able to give out total 4.5 sen of dividends. Once the capex for the new Jordan power plant is over by end of this year, YTLPower will have over RM1.3 billion of free cash flows a year or over 15 sen per share for debt repayment or dividends for the next 15-20 years.