Skip to main content

PUC's 33% Purchase Of Pictureworks - An Opinion

Details of exercise:  PUC to buy 33% of PW for RM52.8m. That values PW at just 52.8 x 3 = RM156m. That might be a shocker to many as investment bankers in China have hinted on taking PW public at between RM400-600m minimum. Looking at the share rise in PUC, and the fact that they are issuing new shares at 32.2 sen, only at current valuation can PUC eat up the 33% stake. To be able to issue at that price is a huge victory for PUC shareholders, being able to take a meaningful stake and issuing shares at recent highs.


  1. (i)  Issuance and allotment of 64,596,273 new PUC Shares at an issue price of RM0.322 per PUC Share (“Issue Price”) amounting to RM20.80 million (“Consideration Shares”); and
  2. (ii)  Cash settlement of RM32.00 million to be made on a staggered basis upon meeting a certain Profit Guarantee (as defined herein) (“Cash Consideration”).


    1. In consideration of PUC agreeing to purchase the Sale Shares in accordance with the terms of the SSA, Cheong Chia Chou (“Promoter”) for and behalf of the Vendors, covenant with and undertake to PUC that:
      1. (i)  the PW Group shall achieve a profit after tax (“PAT”) of RM14,800,000 for the financial year ending 31 December 2018 (“2018 Guaranteed Profit”); and
      2. (ii)  the PW Group shall achieve a PAT of RM20,500,000 for the financial year ending 31 December 2019 (“2019 Guaranteed Profit”); 

A 33% will allow PUC to equity account based on the fact that both companies have the same controlling shareholder, which is good for PUC. Plus a profit guarantee, its a pretty sweet deal for PUC.


Basis and justification of arriving at the Purchase Consideration
The Purchase Consideration of RM52.80 million for the 33% equity interest in PWHSB was arrived at on a willing-buyer and willing-seller basis, after taking into account the following:
  1. (i)  The valuation of 100% equity interest in PWHSB between a range of RM172.89 million to RM222.13 million as appraised by FHMH Corporate Advisory Sdn Bhd, vide its letter dated 21 December 2017. This translates into a valuation of 33% equity interest in PWHSB between a range of RM57.05 million to RM73.30 million; (you will note that the actual valuation was higher than the final consideration)
  2. (ii)  The Profit Guarantee of RM14.80 million and RM20.50 million for the financial year ending 31 December 2018 and 31 December 2019 respectively, as set out in Section 2.1.5.2 of this Announcement. Based on the Profit Guarantee and the value accorded to 33% equity interest in PWHSB of RM52.80 million, the Purchase Consideration represents a price-to-earnings (“PE”) multiple of approximately 9.07 times of forward earnings based on the average of the Profit Guarantee of RM17.65 million;
  3. (iii)  The rationale and benefits of the Proposals; and 10

(iv) The favourable outlook of the digital imaging solutions for amusement park in the Asia Pacific region industry as well as the prospects and growth potential of the PW Group as set out in Section 4.3 of this Announcement.
  1. 2.1.7  Basis and justification for the Issue Price
    The Issue Price of RM0.322 per Consideration Share was determined based on the volume weighted average market price (“VWAMP”) of PUC Shares for the 5-day immediately preceding the date of signing of the SSA.
    The Board of PUC notes that the Issue Price represents a premium of RM0.162 or 101.25% over the audited net assets (“NA”) per PUC Share of RM0.16 as at the financial year ended (“FYE”) 31 December 2016. Further, the Issue Price represents a PE multiple of approximately 119 times calculated based on the earnings per share (“EPS”) of RM0.0027 for the FYE 31 December 2016.
    The Board is of the view that the issuance and allotment of the Consideration Shares to satisfy approximately 39.4% of the Purchase Consideration is appropriate after taking into consideration that the issuance and allotment of the Consideration Shares will only increase the current issued share capital of PUC by approximately 4.73% and thereby resulting in slight dilution to the existing shareholders’ equity interest in PUC.
    Furthermore, the issuance and allotment of the Consideration Shares will also provide the PUC Group with greater flexibility to utilise its existing financial resources to fund the growth of its existing businesses. As at 30 September 2017, PUC reported an unaudited cash and cash equivalents of RM3.92 million. As at 21 December 2017, shareholders and holders of three (3)-year, 4%, irredeemable convertible unsecured loan stocks of PUC (“ICULS”) have approved the variation of the utilisation of the remaining balance ICULS proceeds of RM36.45 million for the further expansion of its technology business, particularly in e-payment and e-commerce as well as advertising and media. 

Conclusion:  If you work back on the figures, the valuation for PW was obviously depressed in order for it to be a sweetheart deal for PUC. In fact, working through the figures, it looks like they used a WACC (weighted average cost of capital) of around 13%, which was debilitatingly high. For a relatively established business with visible growth timeline, plus a profit a guarantee, the WACC should be much less, say 8%-9%. 

Realistically speaking I would still put forward a "current IPO listing value" of RM350-450m based on niched based, tech based platform, which is to say PUC basically paid RM52.8m for a stake that is technically worth RM116m-150m.

How will the share price react? Possibly over 40 sen at least. If the rumoured tie up with Tencent were to come into fruition as well, 50-60 sen is not out of range. Its pointless to judge PUC based on PER now. Look at the building blocks PUC has assembled, its well thought out business platform that leverages on their tech/media advertising base, links with Bersian which connects to a few thousand retailers, getting e-wallet license (no big deal really) but if the Tencent linkup is true, then the e-wallet has new meaning ... the launch of Presto which is a better version of Groupon/Lazada ~ making the prospects of a flourishing and dominating e-wallet a possible reality. The acquisition of a meaningful stake in PW will give PUC a much better balance sheet and a better fundamentals moving forward. Suffice to say, the 33% stake is an excellent proxy should PW gets listed here or overseas later. Thus a valuation in the RM600-800m is not untoward.



p/s this is not a recommendation to buy or sell... just an opinion based on available information and debating the hearsays ... please contact your dealer/remisier before making any decision

Comments

Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.


My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.


I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.


My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.


Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:






























p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far



http://malaysiafinance.blogspot.my/2016/12/bank-negara-may-have-switched-on-bull.html


I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…