Shinvest Offer Price 3.50 Thoughts

A take-over offer was announced for Shinvest at the price of $3.50 per share

Although this stock is not mentioned frequently on my blog post, readers who click on my portfolio details will know that it is 1 of my top 3 holdings. It has been a position i have been holding since 2018 and personally there is a behind story to how i know about the stock.

It is also the 1st time in my portfolio there is a takeover offer.

In my opinion, the offer price is probably somewhat unacceptable. I will be listing down the reasons why.

1. Offer range prices Espressif Shares at 124 RMB

The company has $1.28 net cash per share as of latest balance sheet. Deducting the $0.03 dividend, this results in $1.25 net cash per share.

This implies that Espressif is and Other net assets (around $0.86 per share) is valued at $2.25 per share. To add on, this implies that the business is actually worth 0 as well. Not that the business is profitable but it should still worth some liquidation value.

Lets take the worst case scenario that other net assets are worth 0. This means that 2,804,446 Espressif Shares are valued at $67,286,749.50 

This results in a number of 317 million yuan. Which implies each Espressif Share is valued at 113 RMB.

However, we have to account for a possible deferred tax of around 9.42% when the shares are sold. Hence it values each share at around 124 RMB.

As of 16 February 2022, Espressif traded at 148 price. As such this offer price is actually unattractive.

In fact, at this offer price. The total net asset value of the company is around 4.36. hence i feel that a better offer should be at 3.88 instead since its Chinese New Year

2. Current Espressif Shares values the company at 3.96 (net cash + Espressif) and Total NAV 4.82

As such, the offer price of $3.50 is way below the price that the company can payout if it sells already the shares. 

3. Espressif Shares trading at a lower range.

If there is a word to describe Espressif Share Price, it would be volatile. As over a year period, it has traded from a range of 97 to 296

As such, the price of $150 is already at a lower end. Which implies that there should be valuation upside.

Will the offer hit 90%?

This is an interesting question. There is a gap time between the sending of the offer letter and accepting it etc. As such, everyone will be attaching a closer eye to the share price of Espressif. 

In volatile times, there are  times where Espressif shares have risen up by 28% in a week. If such things happen, i am pretty sure people are not inclined to accept the offer and want a better price.

However if Espressif starts diving down, people might be inclined to offer their shares.

Looking at the shareholding structure, the top 20 shareholders can agree to tender their shares and it still will not hit 90%. Another 11.36% is required.

Doing some math, 116 shareholders control 94.08% shares. Top 20 controls 78.64% with offering party having 29.02%.

96 Shareholders actually hold a total of 15.44% shares which is quite interesting because 11.36% is needed either from here or 9.52% if all the smaller shareholders agree to sell. 

Its quite interesting as the 96 shareholders probably have a role to play as well.  Its also the first time i actually hold more than 0.01% of the company even though i do not hold a big amount of shares among the 96 people.

I highly doubt they will hit 90% but i might be wrong.

Conclusion

I might be inclined to sell my shares. But if Espressif is trading at $150 RMB, then a better offer needs to be given. Especially considering the prospects of Espressif and the net cash position of the company.

Lastly, their freehold shop house is not talked about as no transaction has been done at the similar building. However, given that a similar sized is asking for rental of $5000. A full year rental should be around $60000 and their current net carrying amount of $702000 should be slightly undervalued.

I hope the IFA do their job and value the company appropriately.

*Just for laughs, if Espressif makes its way back to the peak of 296 RMB, then the Net Cash +Espressif stake is worth $6.59 per share.