SCIPACK (8125) - Stock Market Buzz

Let's think aloud what a rational investor may do on Monday.

Scientex offer expires at 5pm Monday. So first step is to check for Bursa announcement before 9am and during the midday break. There is no need to react to any “surprises”, assuming there is any. Even if there is a revised offer, SC rules dictate a minimum 2 week extension of offer. This provide enough time to watch how fund managers respond before retail investors chart their next step.

On the other hand, say for whatever reason Scientex suddenly announces it has acquired over 90% shares from current 71.78%, it is almost certain to acquire the remaining shares. And SC rule dictates it has to be done on the same term, and can be compelled to do so if necessary. So again, no rush.

Now assume no “surprises” after Monday noon break. It means there is no more price revision. Shareholders and warrant holders who have accepted Scientex offer will get their RM2.70 and RM0.32 respectively in due source, no less, no more. Whatever future development will have nothing to do with them. As discussed earlier, these offerees will not be compensated on differences should Scientex acquires at higher price say 6 months later.

If there is no offer revision, the risk-reward will be tilted against remaining warrant holders. A rational warrant holder may choose to accept Scientex’s offer. They may do so online at https://tiih.online/ in the afternoon but before 5pm closing. Make sure they have registered an account with Tricor.

Anyone who wants to speculate that Daibochi warrant price can go higher before expiry in Jun 2022, on the premise of a higher price in mother share during the next 8 months, may be better off getting RM0.32 from Scientex first, and only later buy whatever warrants still available after Monday. Given Scientex offer for warrant is more favorable than mother share, the warrant price is unlikely to hold after the offer expiry. I feel that speculators may get it cheaper in the future.

In fact I would not be surprised if Samarang, and even Apollo which has acquired warrants possibly for defensive reason, may choose to dump their warrants to Scientex just before closing. After all the purpose is already served. Defense is no longer necessary given Scientex is far away from getting to the 90% mark. It may be better to exchange for some capital from Scientex to either lower their Daibochi’s holding cost, or buy more Daibochi shares later.

As for short term shareholders with a horizon less than a year, they may either hold on for price appreciation hoping that the next 4 quarter results improve along with economy recovery, or to sell to buyers at above RM2.70 assume the buying interest is still there, just like last Friday.

But for long term shareholder like me, I have never intended to sell at RM2.70 level in the first place. The move by Scientex has only reinforced my conviction on Daibochi’s prospect. More importantly, Scientex’s move suggests that it may have a strategic plan to consolidate Daibochi first and later list its entire plastic division at a higher valuation. This will offer strategic flexibility and get rid of any potential conglomerate discount. So I expect Scientex to return when time is ripe.

With such knowledge I'm prepared to top up the shares should it drop back to pre-offer level. I trust Scientex’s insight! Rather than taking the opposite side on a trade by selling to Scientex, it's better to invest alongside with it, together with other long term funds.

2021-11-07 17:55

A minor point. Daibochi has a dividend policy “to distribute not less than 30% of the Group’s normalised reported annual net profit attributable to shareholders”.

Unaudited FY21 results show that EPS is 14.37 sen. Therefore the minimum dividend per share = 30% * 14.37 = 4.31sen.

So far it has only announced a 2 sen dividend in Q3. I believe it has not announced further dividend in order not to complicate the takeover exercise.

Assume the exercise is over by tomorrow, may remaining shareholders expect a minimum DPS of 4.31 – 2 = 2.31 sen?

2021-11-07 20:11

EVEBITDA

well said @ observatory. thank you and i have learnt alot from u.

2021-11-08 01:10

@EVEBITDA, you’re too humble. This is just the opinion of a retail investor. It seems that you’re an industry veteran. It’s reassuring when you didn’t find flaw in the logic.

2021-11-08 08:04

Jibbie88

accidentally bought more shares kekeke

2021-11-08 12:04

Zackmeiser

If share dropped to pre 2.2 level just topup cuz u know its worth 2.7 from insider valuation (scientex). Although it might take sometime to reach that. That said, packaging industry is booming with new norm people online shopping. Good counter to invest. Not sure if its for traders.

2021-11-08 16:12

@Zackmeiser, agree, but buy in stages. Recall the speculated kitchen sink that didn’t happen in last quarter. There is still a chance that management may impair Daibochi Myanmar. In last quarter report they said the “market uncertain and volatile”.

Page 98 of 2020 AR shows the book value is about RM25m, which is worth about 2 quarters of profits. But impairment is just an accounting treatment. It affects accounting profit but not real cash. Should they do impairment in future quarter it could present buying opportunity.

Anyway, if share price is low enough it could also lure long term investors who have earlier sold due to fear of delisting to buy back their shares. The announcement is just out. Scientex owns 71.789% as of last Friday.

2021-11-08 17:20

Zackmeiser

71% is far from 90%. I am sure scientex will come back with better offer. Its rm3 for me. Nothing less.

Any drop in price means buying opportunity. Base price is as we all know rm2.7.

2021-11-08 20:38

Can shift the focus back to Daibochi business fundamentals. It’s in Scientex's interest that the company prospers. We just need to watch that it gets a fair deal from related party transactions.

Given its client portfolio and product innovation like sustainable packaging, the investment in organic & inorganic growths, the company intrinsic value can only grow over time. Any future interest from Scientex is nice to have. When it arises the company can be revalued based on the prevailing conditions. Most importantly a good company long term share price will be supported by its fundamentals.

2021-11-08 23:55

gemfinder

Luckily take bqck money at 2.70. Wil drop back to 2.20

2021-11-09 07:49

Ttw570501

Lower price never mine most lmportant don’t let scientex buy up 90% share maybe Apollo and samarang can help we are not intending to sell

2021-11-09 10:53

oldchinaman

"ITCHYLEG Due to the Budget is unfavorable to share market. I have no choice to accept 1.5 million warrants offer yesterday. balance 500k units in hand
02/11/2021 10:12 PM"

ITCHY . You make the right decision

2021-11-09 22:34

I accepted the offer of my balance 590.30k last day (8.11.21)
the payment will receive on 18.11.21. The lst batch payment is on 11.11.21

2021-11-09 22:57

My cost is 32+c
I bought on 14.9.21 (lst day of offer) & 15.9.21
Loss few thousands Riggit

2021-11-09 23:01

The return of buy and hold investors

https://www.tradingview.com/chart/RXOKEilS/?symbol=MYX%3ADAIBOCI

2021-11-10 00:01

Jibbie88

@observatory please publish the chart.

2021-11-10 01:12

iknownuts

@itchyleg, what changed your mind? U seemed to already have a game plan earlier.

Posted by ITCHYLEG > Nov 9, 2021 10:57 PM | Report Abuse

I accepted the offer of my balance 590.30k last day (8.11.21)
the payment will receive on 18.11.21. The lst batch payment is on 11.11.21

2021-11-10 08:56

Budget 2022: Stamp duty for share transaction rises to 0.15%, RM200 cap removed. KUALA LUMPUR (Oct 29): The government has removed the RM200 stamp duty cap on contract notes for trading of listed shares, and increased the rate to 0.15%, from 0.1%

Because of the above , i feel will have negative impact to the stock market

2021-11-10 09:48

keith188

Institutional shareholders

Top holders
Movers

Click or tap a row for details
Holder Shares bought Shares held
AIMS Asset Management Sdn. Bhd. +524.30k / +1.71% 31.23m
Samarang LLP +166.30k / +0.98% 17.21m
Public Mutual Bhd. +39.30k / +0.16% 24.00m
Amundi Malaysia Sdn. Bhd. 0.00 / 0.00% 500.00k
KAF Investment Funds Bhd. 0.00 / -19.19% 314.60k

Holder Shares sold Shares held
Manulife Investment Management (M) Bhd. -882.50k / -34.55% 1.67m
KAF Investment Funds Bhd. -74.70k / -19.19% 314.60k
Amundi Malaysia Sdn. Bhd. 0.00 / 0.00% 500.00k
Samarang LLP 0.00 / +0.98% 17.21m
RHB Asset Management Sdn. Bhd. 0.00 / 0.00% 30.00k
Data from 31 Dec 2020 - 01 Nov 2021

2021-11-10 10:02

I received 480,010.00 from scientex this morning , they pay me back the transfer fee also rm 10.00

2021-11-11 11:51

oldchinaman

Good.........

2021-11-11 14:32

股神巴菲特说过的一段话：“我的一生中，从未遇见一位没亏过钱的富人，却遇见许多什么都不敢干而从未亏掉一毛钱的穷人。

敢投资的人才拥有成为富人的机会。

不敢投资的人，虽然没有亏过钱，但也注定不会赢钱。”

2021-11-13 01:03

iknownuts

So fast popcorn come already…

Change name, change div policy…

https://gfycat.com/uk/heartfeltignoranticelandgull-this-is-gonna-be-good-dis-gon-b-good-spectator

2021-11-19 18:39

Haha, Scientex Packaging. I didn’t expect Scientex to show its cards so soon.

Gone are the lame excuses for the privatization. Daibochi is indeed central to Scientex’s plan such that it will now bear its name. This is in line with my earlier suspicion that Scientex wants to consolidate Daibochi with its remaining packaging business first, and later spin off the entity through another IPO. Due to the failure of its privatization plan, Scientex has probably been forced to re-sequence the order of execution.

Now Daibochi will get Scientex’s name. But it will be odd if other Scientex's packaging businesses do not come under the aptly named Scientex Packaging. So what does it tell us? This is Scientex’s way of saying the remaining 28% shares in the hands of Daibochi minority shareholders are valuable to them!

Fear not about the change in dividend policy. It has been changed once in 2018. After Scientex acquired control, the previous dividend policy of distributing at least 60% of net profits was reduced to 30%. The next three years were followed by aggressive expansion, and jumps in earnings and revenues. MPP acquisition and RM100 million expansion were funded partly by internal cash conserved after cutting dividends.

The need to further revise the dividend policy shows that Daibochi management still sees continuous business opportunity and the case for rapid expansion. That should be slap in the face for TA which has previously assumed Daibochi’s growth rate will decline to 2% after 2026!

Daibochi has registered an impressive ROE of 19% in FY2020, and a still impressive 16% ROE in the pandemic year of FY2021.

Given shareholders’ cost of equity is only 9.13% according to TA, Daibochi has returned almost 10% above the hurdle rate. I’m OK to forego short term dividends if management can continue to compound the retained earning at a near 20% return per annum.

Just let Scientex and Diabochi management run the show. We minority just sit down to enjoy. We know Scientex has a 72% interest and will make sure the management works hard and don’t drop the ball.

In case they don’t act fair, we minority have the privilege vote against resolutions where Scientex is barred from participating.

2021-11-19 21:14

The announcement says
~~
The proposed name, "Scientex Packaging (Ayer Keroh) Berhad" has been approved and reserved by the Companies Commission of Malaysia ("CCM") on 29 October 2021.
~~
https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3210807

Look at the date. The approval was received on 29 Oct, while Scientex offer is still outstanding.

The application could have been submitted, and definitely planned much earlier than 29 Oct. This was most likely coordinated between Daibochi board and Scientex. Daibochi board couldn’t possibly go it alone without the prompt and support of Scientex to use its name.

But both of them did not reveal the information in the offer document nor various other announcements during the offer period. As I guessed earlier, they have a grand plan. But they didn’t tell minority shareholders the full story.

The plan is probably best executed after Scientex has already privatized Daibochi. Unfortunately the privatization failed. Now Daibochi board has to seek shareholders’ vote on the name change. This time round the board better tell shareholders the complete story, and what is their game plan for the future!

2021-11-19 23:36

iknownuts

Scientex always change the name of its subsidiaries after acquiring them. Daibochi is already a couple years late.

If scientex wants to list their packaging biz seperately, they would have done it long time ago. Daibochi is only a part of their packaging business, wouldnt say its integral.

Many commentators always say scientex is not “investable” because of their lack of focus, ie borh a manufacturing and property company. well, its actually the twin turbo engine that is driving the company, its performance and its share price up. Those who doubt companies like this, just need to look at the biggest company in singapore, SEA limited. They own 3 distinct businesses and see how they are growing.

I sincerely hope those remaining holders of daibochi have diamond hands, with only 5% of the free float available now, it is already extremely illiquid. Wb no need to say, just pray something happens in the next 7 mths.

Ok back to my front seat chair.

2021-11-20 10:23

For every successful new economy company like SEA Limited, I can quote at least two other mult-business old economy companies that are not doing well or have broken up. Latest examples include General Electric, once the most successful company in the world, which has just announced a three-way breakup. So is Johnson & Johnson which will be split into two. More prominent examples closer to home include Sime Darby which has spinned off its property and plantation arms.

No one in the forum have doubted the past success of Scientex’s property cum packaging business. But whether it represents a good personal investment instead of flexibly investing into pure plays at respective sectors is debatable.

No one has also said that Scientex will not do well due to “lack of focus”. But any shrewd entrepreneur, which I believe Scientex’s PJ Lim is one, will want to develop and retain the OPTION of spinning off a minority stake of a CONSOLIDATED packaging business.

When the timing is right, why not list a 25% of the consolidated, vertically integrated packaging business at a premium to raise cash for the property arm? In fact every management who is responsible to their shareholders should develop such strategic option, only to be called upon when time is right.

This is where I find the disconnect of certain views in the this forum. They downplay the prospect and value of Daibochi. They praise the brilliance of Scientex management. But they sidestep the inconvenient contradiction on why a brilliant Scientex management may want to acquire 100% of Daibochi which supposedly is worth a lot less. Why never give credit to Scientex management for their strategic move when the credit is due?

It’s funny that people who have purportedly accepted Scientex offer continue to show concern for the remaining minority shareholders, albeit from the sideline. When Apollo, Samarang and Public Mutual which collectively own more than 22% of Daibochi shares are not worried about the reduced free float, I as a small potato long term shareholder is definitely not worried.

Unless the reminder is targeted at those funds. In that case this forum is probably the wrong channel. Better talk to the fund managers directly.

2021-11-20 11:43

Ttw570501

Support you observatory

2021-11-22 10:37

Investmon

wow, 30 years of building up the Daibochi brandname in the packaging industry just got wiped out in one fell swoop. Strange that Scientex management did not remove Greatwall brandname after the takeover. He must be very angry for not successfully taking over Daibochi. and you'd wonder what else would an angry person do to Daibochi, besides name change and dividend change. I think I made the right decision to just give all my small number of shares to Scientex at RM2.70.

2021-11-22 10:44

I don’t think the change of name is an emotional move. There are several clues that lend support to my reasoning.

First, we need to give credit to PJ Lim for growing Scientex into a great enterprise over the years. Successful entrepreneurs like him is unlikely to be distracted by petty revenges. Besides he should know his offer price is rather opportunistic. So couldn’t blame others for rebuffing his offer.

Second, shareholders with sentimental attachment to the Daibochi’s name are likely to be the descendants of the founders. They have already exited in 2018 by selling their stakes to Scientex. It’s hard to imagine Apollo, Samarang or Public Mutual being sentimental to the Daibochi name despite being long term shareholders. So if this is indeed a petty revenge it’s not hitting the right target!

Third clue lies in the date. As mentioned earlier the Scientex Packaging name has been approved by Companies Commission on Oct 29, while the takeover offer was still ongoing. The name change is probably planned well before the offer has been announced.

Forth, @Investmon you’ve just provided another clue by citing Great Wall. Scientex’s Great Wall subsidiaries are called Scientex Great Wall and Scientex Great Wall (Ipoh). By the same convention, Scientex should have renamed Daibochi as Scientex Daibochi.

By calling it Scientex Packaging it hints at a more central role. It implies Daibochi will become the vehicle for Scientex packaging business. But currently Daibochi is the smaller part of the entire packaging business. Such a prominent name seems inappropriate. Unless, of course, this is the precursor to more corporate activities in the future.

Fifth, although Scientex is famous in the packaging business, the name is associated with the upstream business as a prominent stretch film supplier. Daibochi is well known in the downstream converter business due to its long established portfolio of MNC clients. So the Daibochi name has intangible value that a valuation expert could actually put a figure on. There must be a compelling case based on a greater gain to justify writing off this intangible asset.

This is where we need to hear the full story from Daibochi Board. They should explain to all shareholders what is the game plan with all these moves, including the change in dividend policy. They need to come clean on their earlier endorsement of TA low valuation that assumes just 2% growth after 2026. It contradicts the new dividend policy which indicates desire to retain more earnings for investment, which in turn implies the Board seeing opportunities that can generate return above shareholders’ cost of equity.

If indeed the name Scientex Packaging hints at part of Scientex entities may come under Daibochi in the future, we need to know how Daibochi is capable to fund itself to acquire this larger beast.

Despite being a cash cow, Daibochi does not generate that magnitude of cash to take over Scientex multiple packaging entities. Purchase assets from Scientex in exchange of issuing new shares is a no no, as minority shareholders will veto. Funding through borrowing is risky as Daibochi becomes a highly geared. Or more straight forward, Scientex to acquire the remaining 28% shares in another offer in 2022, so that it can do whatever it wants with its entire packaging portfolio?

Those of you who have not sold your shares, let’s attend the AGMs and pose these questions. Although Daibochi directors are not in the position to explain on behalf of Scientex, hopefully from the way they answer we get a hint what could be coming.

2021-11-22 13:26

Investmon

@observatory, thank you for very insightful analysis. But why change the name to restrict it to a localized business, i.e. Ayer Keroh in bracket, if Scientex has the intention to make Daibochi bigger than it is? why not change the name to Scientex Packaging (Malaysia) Bhd or Scientex International Packaging Bhd. you may be right to forecast that Daibochi may take over part of Scientex entities (packaging business, right?), but Daibochi will not have a big enough balance sheet to acquire this larger beast. what do you think, whether Daibochi may do a rights issue to buy these huge assets? I doubt you can get much info from the Daibochi directors at the AGM, since the AGM is likely to be virtual.

2021-11-22 14:24

@Investmon, thank you for the good input. I agree the bracket in the name implies restriction. However, at the same time I also don’t see it as a petty revenge for reasons mentioned earlier. The date of CCM's approval shows that Scientex anyway want to change the name after privatization.

I also agree with you that Daibochi does not have the balance sheet to acquire Scientex’s packaging business. I cited other methods just to illustrate that the best route for Scientex still lies in privatization.

The hurdle in the remaining 28% shares may not be that high if it's a strategic move. Of course, I have no way of knowing what is the price the other three funds have sought. But in the meantime, it’s in everyone’s interest to make sure Daibochi continue to prosper. The privatization could be put aside and revisited later.

This is where I hope the Daibochi board could be candid in the upcoming AGM. If they are willing to explain in details about the company plan, and to assure minorities that they work for the interest of all shareholders, it will help restore the trust. A virtual AGM, while not ideal, is not a hindrance to sincere communication too.

But on the other hand, if they just assume they could bulldoze all proposals through with Scientex votes, they may find resistance on resolutions where Scientex could not vote.

There has been precedence. In 2019 after acquiring 77% of Malayan Cement from Lafarge, YTL Cement was too arrogant to assume Related Party Transactions resolution would be duly passed. The RPT was voted down. After the incident the board had to explain to institution minorities and arranged another vote a few months later.

https://www.theedgemarkets.com/article/minority-shareholders-block-lafarges-rm35b-rpt-ytl-cement

Anyway it’s our rights and also duties as shareholders to raise relevant questions. Let’s look forward to the Daibochi Board being professional and responsible enough to provide the necessary clarity and assurance.

2021-11-22 16:38

Apparently this stock has fallen off inventors' radar. There has been no more posting in i3 forum since my last comment made seven months ago. The lack of interest mirrors the low liquidity. This is expected given Scientex has mopped up all the shares from short term investors. Whoever remain are long term shareholders who refuse to give up their holding without a fair price.

Since the end of privatization, Daibochi (now Scientex Packaging) share price has retraced about 15% from RM2.70 offer price to RM2.31. This is partly due to compressed margin as a result of time lag in passing cost increase to customers; and partly due to short term investors/ speculators giving up on this stock.

Interestingly the industry problem seems to hit Scientex share price even harder. The parent company share price has declined about 30% from 52w height of RM5 to RM3.48 today.

Another interesting development is today Scientex, Apollo and Samarang have announced that they have exercised all their warrants just before the warrant expiry. The exercise price was RM2.50, which was higher than the current mother share price at RM2.31. Given the low trading volume, they have no choice but to convert at a premium to avoid dilution.

After the warrant exercise, Apollo has in fact increased its shareholding from 9.54% as of Nov 2021 to 10.30% now. Samarang has increased from 5.26% to 5.40%.

Despite exercising 16.7 million warrants, Scientex has only managed to keep its holding unchanged at 71.90%.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3271366
https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3271364
https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3271367

Another interesting fact is earlier Scientex has acquired the warrant at RM0.32. By paying another RM2.50 now, the effective price per share for Scientex is RM2.82, which is higher than its original share offer price of RM2.70. Not to mention that Scientex has also missed out the 5 sen final dividend paid on Jan 2022.

Altogether Scientex, Apollo and Samarang have paid an extra RM58 million in warrant exercise to defend their shareholding. They continue to see value in Daibochi. Clearly Scientex has not given up yet!

2022-06-27 23:46

A virtual AGM will he held next Wed via the Tricor platform. Investors can sign up and put forward questions.

I checked the Apollo Asia Fund (the second largest shareholder) website and found the manager Claire Barnes had shared her view on shakeup of the Board -->
https://www.apolloinvestment.com/F221128.htm

2022-12-02 13:39

emmaclerk

You won’t believe, I have not even tried sushi yet. I always wish to try it but every time my friends order something different or go out to such restaurant where sushi is not considered as the best dish. You know, yesterday I had chance to taste it because my friend went to such restaurant, but I could not because I was busy looking for the Mba Dissertation Help online

https://academicinside.co.uk/expertise/dissertation-help/mba-dissertations/

2022-12-02 13:58

Just found that it has come to the attention of Minority Shareholder Watch Group. MSWG CEO Devanesan Evanson
has written about it in the latest newsletter --> https://www.mswg.org.my/sites/default/files/2%20December%202022%20MSWG%20Newsletter%20%28final_v2%29.pdf

2022-12-05 12:39

@observatory, I am surprised that you are still holding on to Daibochi shares after the failed privatisation attempt by Scientex last year. I sold off mine before the privatisation exercise concluded as we already concluded that the privatisation attempt would fail well before it ended.

I did not like the privatisation attempt by Scientex, more so on its offered price which clearly undermined the business prospects of Daibochi. But the bigger concern to me was for Scientex management to come into Daibochi, as Scientex was pretty much a china man company with not much corporate governance. I was skeptical of what synergy Scientex could bring to Daibochi with its commodity-like stretched film business, and I thought it would be more of a case for Scientex to extract value from Daibochi to benefit its own larger stretched film business.

And now things have become clearer and most of concerns have turned out to be true, i.e. Scientex single-handedly rejected the motion of Daibochi to adopt the best practice on corporate governance, and lowered the dividend policy to just 30%.

From these moves, I can reasonably expect that Scientex is not done yet with Daibochi and will not do anything good to add value to Daibochi. It may make another offer to acquire the remaining 23% minority stakes in Daibochi at similar price of RM2.70 or even lower. Scientex is doing all these maneuvers to frustrate the minority shareholders of Daibochi so that they will sell out to Scientex later at a low price.

You do not expect Scientex to inject its stretched film business into Daibochi as it is much larger than Daibochi, it will be more likely for Scientex to privatise Daibochi then inject it into a spin off listing of all its packaging businesses. Scientex will privatise Daibochi at RM2.70 or lower then inject it into the new listing at RM3.00 or much higher. This is typical china man thinking of doing corporate exercises, to benefit only himself.

I would recommend you to gradually exit this Daibochi as I do not think you can benefit anything from its future potential, as Scientex will try to reap off all the benefits first and deprive you of such potential.

2022-12-21 13:02

Another sign that I do not like to see is that Daibochi stopped its quarterly investor presentation session after Scientex came in. So you will not know what is going on in the company, and Daibochi management is not allowed to release any information not favourable to Scientex's bigger agenda of privatising it. Information flow will be limited and controlled, and I suspect Daibochi management and business strategy in near term will be impacted and aligned to Scientex's agenda, i.e. Daibochi will not embark on aggressive expansion or at least will not report any good earnings until Scientex successfully privatise it at low price.
What is the point of holding onto Daibochi shares?
Better switch to other better managed companies with long term growth potential and good corporate governance, where major shareholders' interests are aligned with minorities.

2022-12-21 14:50

If you have large positions in Daibochi, then it may be difficult to sell in the open market as the counter is illiquid. You may rely on other substantial shareholders like Apollo and Samarang to negotiate for a better pricing when Scientex makes a second attempt to privatise Daibochi.

2022-12-21 14:54

@dragon328, yes, the changes that Scientex introduced are detrimental to minority shareholders’ interests. Scientex has instructed to stop investor presentation purportedly to let management focus on running the business. However, the true objective is to further reduce interest in Daibochi share as analysts will have to stop their coverage. Scientex wants to put pressure on other major shareholders namely Apollo, Samarang and Public Mutual to sell their stakes in the future privatization attempt.

The RM100 million capacity expansion has mostly completed. FY22 revenue increased about 30% YoY (partly contributed by increased ASP). But utilization is only 60% due to the much-expanded capacity. There is ample room to grow the business in the next few years without heavy CAPEX. With good operating cashflow from this business, helped by the prospect of improved margin (raw material and freight costs are coming down, and there is time lag of passing cost increase to customers), and with greater adoption of sustainable packaging, both margin and free cash flow should improve. I believe the next few years is the harvest season after earlier investment.

While I’m confident on the business, the question is whether Scientex will let Daibochi to share the fruits with shareholders. Note the 30% payout was the previous dividend policy that had been in place for several years already. It was actually scrapped after the failed privatization attempt. At that time I expected Scientex might frustrate minority shareholders by stopping future dividends.

But interestingly Daibochi still announced two distributions after the change in dividend policy. The latest dividend is payable next month. This brings FY22 full year dividend to 5 sen with 38% payout. In this aspect, Scientex’s interest happens to align with other shareholders. Scientex can’t afford too much cash accumulating at Daibochi given it needs to fund other businesses, especially land acquisition for its property division. When Scientex instructs Daibochi to distribute the excess cash, the cash will unfortunately (for Scientex) be distributed to all shareholders proportionately and leaked from its control.

It’s also in Scientex’s interest to let and drive Daibochi management to run the business well. After all, Daibochi results are consolidated under Scientex. Within its various commoditized plastic businesses, it’s Daibochi that offers the greater growth potential due to its unique positioning and portfolio of MNC clients. If Daibochi does not grow, I don’t see how Scientex could achieve its aim of doubling in every 5 years, which it’s struggling to do now.

However, while Scientex wants Daibochi business to do well, I have no illusion that it wants the share price to languish. Anyone holding the share has to be long-term oriented, hoping that the business growth will eventually be reflected in future share price or future privatization offer.

As mentioned before, I only has a small holding in Daibochi, which I acquired at previous downturn and before the privatization attempt. I continue to hold because it offers diversification benefit from a portfolio perspective. Of course, when those funds eventually sell out to Scientex, I will have to follow at whichever price they agree with Scientex. I’ll let them do the worrying. I just tag along.

2022-12-25 14:59