• Microcap stock CH Offshore jumped 20% last Friday after an analyst report circulated calling it "extremely undervalued" and outlined why it could be cheaply privatized by its controlling shareholder. • The stock jumped from 1.5 cents to 1.8 cents. Even if a privatisation offer is made at 2 cents/share, it would cost the controlling shareholder Baker Technology merely $18.9 million to buy the 45% stake it doesn't own. If privatisation succeeds, the controlling shareholder would own CH Offshore's $17.5 million net cash, $14 million of which were raised from a rights issue recently.  CH Offshore operates 6 Offshore Support Vessels. Note: Dr Chang is the father of Jeanette Chang. • So the math for a takeover at the 2-cent price level is compelling -- but will minority shareholders accept it and will an independent financial adviser recommend it? Will Baker Tech in the first place conceive such a lowball offer? • Meanwhile, the business of CH Offshore is doing pretty good, thank you, with charter rates where they are. And its stock could rise further with greater market awareness and the company's improved performance. Helming the company is an industry stalwart, Dr Benety Chang, who is also a controlling shareholder of Baker Technology. Read more below .... |
Excerpts from Lim & Tan Securities report
Analyst: Linus Loo
| CH Offshore Is Extremely Undervalued, Making It An Ideal Privatization Candidate Post 2 for 1 rights issue exercise in June’2025 at 1 cent / rights share, CHO is extremely undervalued as it trades at only 0.4x P/B & 1.6x EV/EBITDA, with a net cash position making up c.55% of its market cap.  Linus Loo, analyst.At current market value of only $32mln, Baker Tech currently owns & controls 55% of CHO. Baker Tech would only need to come up with S$14.2mln to take full control of CHO.With CHO’s current net cash position of S$17.5mln, it would make this exercise a self-funding one for Baker Tech at current price. Even assuming a 33.3% premium at 2 cent/share, CH Off shore’s market cap would only be $42mln and Baker Tech would only need to fork out $18.9mln for the 45% share that they do not own, only a bit more than CH Off shore’s current cash holdings of S$17.5mln. With BT’s robust balance sheet (gross cash of $112mln and net cash of S$98mln) and CHO playing a strategic role in BT’s operations (& CHO has also been on SGX’s watchlist for a while now), it makes financial & strategic sense for Baker Tech to try to take full control of CH Off shore. |
Post Rights Issue, CHO’s Balance Sheet Is In A Pristine State
CHO’s latest rights issue has raised S$14mln and boosted their balance sheet into a net cash position of S$17-18mln, accounting for about 55% of its current market cap of $31.5mln.
This cash will be used to expand their current fleet and take advantage of the higher charter rates seen in today’s market.
Although the rights were highly dilutive, it was oversubscribed by 175%, indicating the robust interest in CHO’s shares.
| US$8.9 m operational cash flow |
| "Today, under Baker Tech’s stewardship, CHO is now operationally profitable, posting earnings of US$1.1 million and EBITDA of US$6.8 million in FY2024. More importantly, it has strengthened its balance sheet ... and generated operational cash flow of US$8.9 million in FY24." -- Lim & Tan Securities |
Baker Tech’s strategic role in CHO
BT successfully took control of CHO at $0.13 per share in 2018 (having spent about $55mln then when CH Offshore was in a loss-making position of more than US$20mln and net debt position of US$3mln) and eventually acquired a 55% stake in a loss-making and financially weak CHO.
CHO remains strategically important to Baker Tech, as it operates some of the vessels built by the group such as “Blue-Titanium”.
With CHO now on a stronger financial footing following its rights issue, trading at just $0.015 per share, and BT holding ample cash, a privatisation attempt appears possible.
Given its majority stake and CHO’s net cash position, the transaction would require minimal cash outlay from BT.
| Undemanding Valuations versus other offshore listed players CHO trades 0.4x PB and boasts an EV/EBITDA of 1.6x, which represents a discount of 70% and 58% to its peers respectively. With the current rights issue proceeds in, balance sheet has also strengthened with US$13.8mln of net cash representing 55% of current market cap.  Note also that 38-vessel owner Nam Cheong, despite being the largest OSV owner in Malaysia and Singapore, trades at a low 2.4 EV/EBITDA. |
See also: NAM CHEONG: Another Announcement ... and Long-Term Charters Rise To RM1.7 Billion
