SHARES OF World Precision Machinery were up as much as 3 cents to 52.5 cents this morning after DBS Vickers highlighted World Precision Machinery as a possible privatization play.
In fact, the company did have a go at privatization in 2007, with an intent to re-list on Nasdaq but did not succeed.
DBS Vickers analyst Tan Ai Teng reckoned it could revisit the plan, given the current “depressed valuation” of the stock.
In its prior attempt at privatisation, World Precision did not meet a pre-condition for privatization when its earnings slipped 11% in FY08, no thanks to the global financial crisis.
Emerging from the downturn, the company doubled its earnings in 2010. For 2011, DBS Vickers expects earnings to surge to a record high of RMB178m.
“Going forward, World Precision remains well positioned to benefit from industrialisation growth in China,” said Ms Tan.
She considered the stock’s recent valuation at 4.5x FY12 PE and 0.9x FY12 P/BV to be low vis-à-vis strong EPS growth of 25-30%.
Its market cap: S$188 million, based on 47-cent stock price.
As a result, “World Shareholder, which holds a substantial 77% stake in World Precision, may once again consider privatisation and re-listing to seek out higher valuations.
"After all, current valuation is significantly lower than previous offer price of S$0.70, which valued the stock at 10.5x PE then.”
DBS Vickers believes the stock warrants a re-rating. World Precision’s earnings growth is still robust at 25-30% for these two years.
“In fact, the company has consistently outperformed our expectations for the last year and we believe 4Q11 should be inline if not better than expected.”
Ms Tan added: “We expect overall earnings growth of 23% or more in FY12. Based on 6.5x FY12 PE, our TP is revised up to S$0.68, implying 40% upside from current level. Hence, upgrade to BUY.”