Lian Beng (SGX:L03) management, who are also major shareholders, have proposed an offer of S$0.62 per share to acquire all outstanding shares not currently owned by them.
At the time of the offer, the major shareholders of Lian Beng collectively hold 69.56% ownership of the company.
The management’s intention is to delist Lian Beng from the stock exchange. This decision was made based on the belief that the company does not need to raise funds from the capital markets and it would be imprudent to pay listing fees.
Additionally, the low trading volume of its shares suggests a lack of investor interest, further validating the decision to delist.
This is a common issue faced by numerous companies listed on the SGX, particularly small and medium-sized enterprises. Due to the low trading volume of their shares, these companies often struggle to achieve fair valuation, which can prompt them to opt for delisting.
However, delisting may result in fewer available stocks for investors, further reducing interest and exacerbating the low trading volume. This has become a vicious cycle.
Offer below book value, why like that?
Lian Beng’s book value per share is estimated to be around S$1.82. With an offer price of S$0.62, the offer represents a significant 67% discount or a price-to-book (PB) ratio of just 0.34x.
Given the substantial discount to the book value, some shareholders may feel that they are not receiving fair value for their shares, potentially leaving them feeling shortchanged.
But before you get upset, it may be helpful to examine how the market has been valuing Lian Beng’s shares.
Over the last decade, Lian Beng has had an average PB ratio of 0.5x, with the past five years seeing a slightly lower ratio of 0.4x.
Given that Lian Beng has historically traded at a discount to its book value, it is unlikely that the offer price would reach a PB ratio of 1x. A more reasonable benchmark would be a PB ratio of 0.4-0.5x, suggesting a fair value range of S$0.73 to S$0.91 per share.
Another useful point of reference would be the historical trading range of Lian Beng. The monthly price chart (see below) for the stock shows that the share price has fluctuated between S$0.052 and S$0.69 (inclusive of dividends) over the entire trading history of the company. In light of this, the offer price of S$0.62 is quite reasonable, as it is close to the all-time high and would have yielded profits for most shareholders.
One plausible reason for the recent rise in Lian Beng’s share price above the Offer price of S$0.62 could be attributed to market speculation that the Offer may be revised upwards. This speculation may have been fueled by the recent delisting of another construction company, Chip Eng Seng, where the Offer price was raised from S$0.72 to S$0.75. However, it is important to note that such a revision is not guaranteed.
In my opinion, a fair offer price for Lian Beng would be around S$0.73, which would represent a reasonable premium to the current offer price while still providing shareholders with a profitable outcome, even though the offer price would still remain significantly below the company’s book value.
Likely to be delisted
While the markets may be optimistic about a potential upward revision of the offer price, I am less sanguine. With the offeror already owning close to 70% of Lian Beng, they only need to acquire an additional 20% to successfully delist the company, making it less likely that they will increase the offer price.
Moreover, given that the offer price is close to the all-time high and many shareholders have likely made profits, it’s possible that they would be content to accept the offer.
Thus, I believe there is a high chance that the delisting offer would go through.
In addition, the offeror has indicated their intention to exercise their right to compulsorily acquire the remaining shares if they surpass the threshold required to do so.
More construction companies may follow
Following the successful acquisition of Chip Eng Seng by Gordon and Celine Tang, which led to the delisting of the company on April 11, 2023, Lian Beng is also facing a similar situation. This trend of delisting might continue as other construction companies could also consider taking the same route.
Many construction stocks are currently trading way below their book values, which could be an attractive proposition for delisting:
- Koh Brothers (SGX:K75) 0.2x
- Wee Hur (SGX:E3B) 0.4x
- Low Keng Huat (SGX:F1E) 0.5x
- Tiong Seng (SGX:BFI) 0.5x
- OKP (SGX:5CF) 0.6x
- KSH (SGX:ER0) 0.6x
- Hock Lian Seng (SGX:J2T) 0.6x
