SHC Capital - An Interesting RTO play

SHC, upon completion of its sale of insurance business, has today announced the special dividend payment of 12 cents. Share price is unchanged today at 32.5 cents despite general market weakness. Dividend will be paid on 22 August.

Surplus cash, equivalent to about 26 cents, is currently held in escrow account. SHC is essentially a shell company now.

For those who are not familiar with See Hoy Chan Sdn Bhd group, controls over 80% of SHC, this Malaysian group is a leading property developer and property investment company that has built many distinguished commercial landmarks and residential hubs in Petaling Jaya, Selangor. The group is established for more than 70 years.

Current developments involve high rise projects, both commercial and residential, in Damansara Uptown, Petaling Jaya, Selangor. A well known thriving commercial area bordering other established housing estates such as Bandar Utama (developed by related group of See family) and Taman Tun Dr Ismail, an upper class residential area.

I see SHC as an interesting RTO play and expect the group to inject its assets into the company. Post dividend payment, share price will be supported by cash backing of about 26 cents – good margin of safety.

Share price closely firmly at 23 cents. Could this be the start of the long awaited RTO exercise.

With significant cash in hand, the chance of RTO for SHC should be high as compared to shell PLCs with negligible cash holding.

SHC just announced on the proposed RTO exercise, involving
TONG DA MEDICAL DEVICE LIMITED.

Although details on the injected business are limited. I am excited about 2 matters - the new business is in healthcare and the market is in China.

Purchase consideration is pegged at PE 10x. This can be considered to be cheap as PE for healthcare can be in region of > 30x. I am incline to hold SHC longer as a growth stock. Note that there is a proposed 9 cents dividend to be paid.

Stock is ascending steadily. Assuming the RTO is successfuly concluded I would expect SHC to be rerated (classified in healthcare) and possibly a price breakout ensuing.

Watch this counter.

We will know by 15 May whether the RTO will proceed. If this agreement is executed then I should expect share price to firm up. Furthermore, SHC is expected to distribute another round of dividend from its cash holdings.

I expect a positive outcome - hopefully..

SHC has announced today signing of agreement to acquire Tong Da Medical Group.

This RTO play should be positive as target group is being acquired at PE of 10, further distribution of about 12 cents (to existing shareholders) and new business is in healthcare sector.