Potential delisting from SGX (DBS)

Potential delisting, cash exit offer of not less than

S$0.70/share. Sound Global announced that its Chairman,

Mr Wen, also the largest shareholder with 56.2% stake,

has issued a Letter of Intent to the Board to propose a

delisting from SGX while maintaining its primary listing on

HKSE (00967 HK). In connection with the possible

delisting, Mr Wen is offering cash of not less than S$0.70

per share.

Potential delisting on the SGX is subject to approvals from

authorities and shareholders. This delisting would require:

1) approvals from the authorities including SGX, HKSE, SSIC

and HK Securities and Futures Commission and others, 2)

approval of the Board and shareholders. The company

qualified that there is no certainty that the delisting will

occur.

Exit offer base price looks fair based on current state of

operations. In the past few quarters, revenue growth has

moderated despite orderbook hitting a record high of more

than Rmb3bn. The lower sales dragged down profit

growth, which was also impacted by significantly higher

interest expense due to the 11.875% senior note issue. The

offer base price of S$0.70 is 22.8% higher than last

transacted price of S$0.57. However, in PE terms, this

translates to 12.2x FY13F PE, still below historical mean of

13.5x PE.

Delisting effort could be long drawn. It has been over two

years since China Animal Healthcare made a similar

delisting proposal in Oct 2011. From this, we feel that

SGL’s delisting attempt could be equally protracted. Share

price could spike on kneejerk reaction to this news but