PNE Industries looking to sell PNE Print

PNE Industries came out with an announcement (PDF) today. The company intends to dispose of their subsidiary PNE Print Technology, which was involved in the manufacturing and sale of pre-sensitized plates. Operations at PNE Print were ceased in November 2014, because it was unable to operate profitably.

PNE Industries is negotiating with potential purchasers, but there are no concrete offers yet. They expect that a successful disposal should bring 40m RMB to 50m RMB ($8.9m SGD – $11.1m SGD). This estimate is based on a valuation of the land and the building that PNE Print owns in China. This is a substantial amount, considering the market cap of PNE Industries is just $50.4m as I write this.

If they are able to complete the sale in this price range it would mean an excess of $3.2m to $5.5m over the book value of the assets.

This looks to be another positive development for the company and shareholders, much like the partial sale of the shares in PNE PCB last year.

Proceeds could be used for working capital or a special dividend:

The Company intends to use the proceeds from the Disposal Consideration for working capital. The Company may also consider declaring a special dividend upon completion or substantial completion of the Proposed Disposal, depending on the working capital requirements of the Group at that time.

Since the company has $30m in cash and only $10m of total liabilities, I think a special dividend is likely to follow if the sale of PNE Print is completed. PNE Industries also paid a special dividend after the sale of the PNE PCB shares.

Disclosure: long PNE Industries (SGX:BDA)

Posted in Singapore stocks and tagged .

NeverLoseMoney

Author of ValueInvestingBlog.net. Private investor.

8 Comments

  1. I have been expecting this but hoping for the special dividend to be more than $5.5m. My analysis on the management is they would continue operating the stable and profitable business until a fat offer for takeover. They have hinted during the last EGM their preferred price would be $0.30 ($1.20 after share consolidation).
    Thinking in their perspective, they have no reason to privatize the company on their own. The brothers are operating like semi-retirement, getting a basic pay and good dividend payout of probably $0.02 ($0.08 after share consolidation) now that the EPS could be $0.034 after disposing PNE Print. The profit should be increased since the cost are mainly in weaken Ringgit and sale price in strengthen USD. There should not be major acquisition because they probably would not want to take risk since they are on retirement mode and there is no succession plan.
    I would keep the share even the price is $0.92 (NTA) as I am expecting yearly dividend of at least $0.08, a nice 8.7% yield.

    • Thanks for the background information about the management, that’s very interesting.

      It does make sense for them to clean up the problem areas and to sell excess assets before looking for a sale of the remaining, higher quality business.

      Do you have an idea why they did not dispose the remaining PNE PCB Bhd shares yet? Were there any comments about this at the EGM? The market price of PNE PCB is still around 1.00 Ringgit and looks to me like an attractive level to sell.

      • Just to clarify, the above are my own analysis on the management except the price of $0.30 which they hinted would be their preferred price if there is any offer for takeover.
        As for PNE PCB, I can’t remember if there was anything mentioned during the EGM even if there was, I don’t think it is important. As mentioned in the Annual Report 2014, PNE PCB has been reclassified from associate to available-for-sale investment of about S$3,786,000. And from now on, the PCB result will not affect PNE Ind.

  2. Starting to like this more and more. After selling all remaining businesses they should have ~40m+ in cash. They have a history of paying out a juicy dividend, contract manufacturing is doing ok and generates decent cashflow. If they pay out all excess cash (and of course that is the crucial ‘if’) I think the remaining business should be worth the current market cap.

    On the other hand, for tax reasons the owners might want to keep the cash in the business. The recent incorporation of an investment subsidiary might mean that this is the plan.

    • Still looks good to me as well.

      The new investment sub is a bit strange. It comes down to what the plans of the controlling Tan family are. If they do want to continue the business and eventually pass it down to the next generation, then they might hold on to a lot of cash or start investing in real estate (seems like a popular choice among Asian family controlled companies).

      What I think is a little unusual here is the number of family members owning stock. The top twenty list of shareholders is dominated by Tan’s. I think that offers some hope for outside shareholders. When you have this many family members owning substantial amounts of stock there are probably some who ultimately want to see the business sold. That would probably be the ideal scenario for outsiders as well. Something like this is certainly not priced in currently and it doesn’t seem crazy for it to unfold this way.

    • Yeah, solid results for the 6-month period. It looks like their remaining business should be able to make at least $10m for the full year period. That’s about a 6 P/E ratio at the current price. After backing out the excess cash, it looks ridiculously cheap indeed.

      [Edit] Probably too optimistic to expect a $10m profit for the year. The result for the last 6-months look stronger than usual due to changes in product mix that resulted in higher margins.

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