Shares of Taiwan Cement Corp (台泥), a leading cement supplier, rose sharply yesterday after the company announced plans a day earlier to bring a Hong Kong-listed subsidiary fully under its umbrella through a cash offer, dealers said.
The buyout plans generated optimism over Taiwan Cement’s earnings prospects because the deal will allow it to book the full profits of the Hong Kong unit, TCC International Holdings Ltd (台泥國際集團), which has a major production base in China and is benefiting from rising product prices there, they said.
Shares of Taiwan Cement jumped 3.21 percent to end at NT$45 yesterday, retreating from a 4.24 percent rise in earlier trading.
“Judging from the strong showing made by Taiwan Cement’s shares, I think many investors are upbeat about the company’s profitability once it controls a 100 percent stake in the promising TCC International Holdings,” KGI Securities (凱基證券) analyst Angus Chuang said.
Taiwan Cement said in a statement on Tuesday that wholly-owned subsidiary TCC International Ltd is to launch a voluntary cash offer to acquire all outstanding shares in TCC International Holdings for HK$3.9 per share.
The acquisition price represents an almost 30 percent premium on TCC International Holdings’ closing price on the Hong Kong stock exchange on Friday, before trading in the shares was suspended on Monday.
Taiwan Cement currently holds a 56.5 percent stake in TCC International Holdings. The acquisition is expected to cost the Taiwanese company about HK$5 billion (US$645 million).
“Despite the high premium, the acquisition price is fine because shares of TCC International Holdings have long been undervalued in the Hong Kong market based on its profitability,” Chuang said.
In the first six months of the year, TCC International Holdings had a net profit of HK$590.79 million, up from HK$262.85 million a year earlier, reflecting product price hikes in China.
Another Taiwanese cement supplier, Chia Hsin Cement Corp (嘉新水泥), holds a 15.8 percent stake in TCC International Holdings, which Chuang said would simplify the acquisition process to some extent.
“I expect the acquisition to proceed smoothly and it could be completed in three to six months,” the analyst said.
“Next year, Taiwan Cement is expected to book all of TCC International Holdings’ profits. The acquisition will give a boost to Taiwan Cement’s earnings,” Chuang said.
“I will upgrade my forecast for Taiwan Cement’s EPS [earnings per share] in 2014,” Chuang said.
The analyst currently estimates the company’s EPS for next year will be NT$3.16, compared with a prediction of NT$2.76 for this year.
Chuang said he will also maintain his “outperform” recommendation for Taiwan Cement shares and is planning to upgrade his target price, which stands at NT$50.5.
In the first nine months of this year, Taiwan Cement posted a net profit of NT$11.14 billion (US$376 million), up 48.76 percent from a year earlier. Its nine-month EPS stood at NT$2.06, up from EPS of NT$1.62 from January to September last year.