World Precision Machinery

Bright World Precision closed at 43 cents today, a very surprising level as there is currently a takeover offer at 70 cents in cash. a posting at a blog quoted Kim Eng Securities as saying that : "Judging by the share price pattern over the past week, it appears that some investors may not be confident that the deal will go through given the numerous hurdles."

Among the conditions, Bright World's quarterly, full-year net profits for periods ending Jun, Sep, Dec '08 can't fall by more than 10% on-year; also, not more than one-third of buyer's public shareholders can redeem their IPO shares for cash.

stock is up 1 cent this morning. details of action in picture:

checked that the last insider purchase was in Dec last year. the CEO bought at around 52 cents a share.

Research report from DBS Group Research written by Pei Hwa Ho.

Accept the offer. The offer price is attractive at 66%-78% premium to BWPM’s 6-month volume weighted average price and 89%-102% premium to its last closing price on 18 July. Stripping off net cash, the offer price at S$0.70 would value the core business at 10.5x 2008 PER similar to its more established Japanese peers. We expect BWPM’s share price to trade closer to offer price of S$0.70. Investors may also take the opportunity to lock in profit now instead of waiting for another 6-12 months pending necessary approvals. Risk to completing the takeover could arise from one of the pre-conditions that BWPM cannot report earnings decline of more than 10% in 2008 given rising iron and steel costs. We expect BWPM to report 11.5% decline in operating profits to RMB135m in 2008.

How contradicting.. 11.5%!! This analyst is able to precisely forecast the decline up to 1 decimal place.

donmihaihai, be kind to the analyst. she used her Excel spreadsheet and out came the figure to 1 decimal place. on the larger picture, i was thinking that the intended buyer of Bright World would have discussed with the management to get good guidance on the profit numbers for FY08. It\'s highly unlikely they did not do so - why go thru so much trouble to make an offer, set conditions and find in the end the offer cannot go through becos the profit fall was more than 10%? another point is, don\'t forget, the CEO of Bright World will become vicechairman of the buyer company subsequently - something like that. So, it can\'t be that all this is just empty talk. on balance, at 44 cts, the upside potential looks attractive versus the risk of the takeover not materialising.

I agree with you Harlequin. This looks to me a classic example of arbitrage opportunity. I don\'t expect the -10% conditions (separately for YTD 6M, YTD 9M and FY 08) to be violated given that the Q108 result was already 46% higher than Q107. I just wonder who are selling at this price.