Scientex takeover of Daibochi expected to deliver positive results

Analysts say this could be an indication of further industry consolidation

By NG MIN SHEN / Pic By MUHD AMIN NAHARUL

Scientex Bhd’s takeover of Daibochi Bhd is expected to reap positive results for both companies and could be an indication of further industry consolidation, said analysts.

Shareholders of Scientex gave their approval for the purchase of a 42.41% stake in Daibochi for RM221.1 million or RM1.59 per share at the company’s EGM on Monday, making it an unconditional deal.

“It’s positive for both companies, especially more so for Scientex because they have the biggest international profile among packaging players, and they deal with industrial customers and players who are manufacturers, so in some ways they act as an intermediate supplier. They don’t deal a lot with end customers. So for them, scale is a big thing,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told The Malaysian Reserve.

He added that there could be more similar merger and acquisition exercises in the packaging industry, given the need for large-scale operations.

“Consolidation in an industry like this is very possible — companies are always looking to enlarge their scale of operations, one way being buying out competitors. Size also allows you to deal with international customers,” he said.

Recent news reports suggest plastic flexible packaging producer Tomypak Holdings Bhd’s single largest shareholder, Adrian Yong Kwet On, is looking to sell his 22.81% stake in the company.

According to the report, one of the stake’s potential buyers is a Japanese investor.

The 139.1 million shares will be acquired by the issuance of 25.1 million shares in Scientex, with a share exchange ratio of one new ordinary Scientex share for every 5.535 Daibochi shares.

Daibochi shareholders can either accept RM1.59 in cash for every Daibochi share held, or swap for new Scientex shares on the basis of one Scientex share for every 5.535 Daibochi shares held.

The takeover offer is aimed at expanding Scientex’s reach in the global flexible plastic packaging market, while the combined expertise of both companies would also propel Daibochi to greater heights.

Scientex operates largely in the upstream plastic packaging space with products including stretch film, polypropolyn, polyethelyn and middle packaging applications such as woven and bulk bags.

Daibochi is a flexible packaging producer with manufacturing facilities in Malaysia and Myanmar, focusing on downstream end-to-end flexible packaging for consumer multinational companies such as Nestlé SA, Mondelez International Inc and PepsiCo Inc.

The acquisition of a 42.41% stake in Daibochi, which is expected to be completed by Feb 19 this year, is anticipated to contribute positively towards Scientex’s earnings for the financial year ending July 31, 2019, onwards.

Shares of Scientex closed two sen or 0.23% higher at RM8.81 yesterday, valuing the firm at RM4.31 billion.

According to Bloomberg data, there are three ‘Buy’ calls and two ‘Hold’ calls on Scientex presently, with a 12-month target price of RM10.01.

Daibochi shares fell two sen or 1.24% to RM1.59 at market close yesterday, giving the firm a market capitalisation of RM520.48 million.

The stock has two ‘Hold’ calls as per Bloomberg, with a 12-month target price of RM1.64.

Kenanga Investment Bank Bhd in a note last November said it is long-term positive on the acquisition of Daibochi as it offers synergies, complementary product portfolios and economies of scale for Scientex.

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