SINGAPORE (Nov 6): Phillip Capital advises shareholders to reject the offer by Cosco Shipping International to take over Cogent and delist the logistics player.

Instead, they should take partial profit and hold out for a failed delisting.

Cosco on Friday made a voluntary offer for all the shares of Cogent, saying the offer price of $1.02 is final. Cosco also does not intend to maintain the listing status of Cogent.

See: Cogent gets $1.02 per share cash offer from Cosco Shipping

Analyst Richard Leow says he is disappointed with the offer price as it does not adequately reflect the huge potential for Cogent, when it becomes a subsidiary of Cosco.

“In view of the ceiling to the market price and unjustifiably low offer price, we recommend minority shareholders to take partial profit to avoid tying up capital while the offer remains open and reject the offer,” says Leow in a Monday report.

Leow says Cosco’s offer price is only 14.9x of trailing 12-month (July 1, 2016 to June 30, 2017) EPS of 6.86 cents. The offer price is at an 8.9% discount to Phillip’s existing target price.

On the other hand, Poh Tiong Choon Logistics, arguably Cogent’s closest peer, had an offer price of $1.30, which was 23.0x of trailing 12-month from (July 1, 2016 to June 30) EPS of 5.66 cents.

In addition, the trailing price-to-earnings multiple of 14.9x does not adequately reflect the huge potential from the Jurong Island Chemical Logistics Facility (JICLF) project and China Cosco’s plans for Cogent.

As it is, Phillip has been bullish on the outlook for Cogent, arguing that the JICLF project will potentially double Cogent’s warehousing capacity. Moreover, profit margin at JICLF is expected to be higher, as it will be handling dangerous goods.

“We expect more than 40% growth in net profit in FY19. With China Cosco’s plans for Cogent to be a regional logistics player, the future for Cogent now looks even brighter,” says Leow.

Nevertheless, if Cosco receives at least 90% acceptance, trading of shares in Cogent will be suspended and Cosco will exercise its right to compulsorily acquire all the shares and delist Cogent.

Shareholders with a combined stake of 84.33% have already given their undertaking to accept the offer. This means Cosco only requires a further 5.67% acceptance to garner the 90% required to compulsorily acquire all the shares and delist Cogent.

In addition, it is unlikely for a competing proposal to materialise as the undertaking shareholders will not be able to accept one, even if it is at a higher price than the offer price.

As such, minority shareholders should not hope for any price appreciation beyond the offer price until the offer closes.

“If the delisting is successful, minority shareholders will receive $1.02 anyway. If the delisting fails, minority shareholders will remain shareholders of Cogent, a listed-subsidiary of Cosco, and will reap the full returns and risks as China Cosco attempts to build Cogent into a regional logistics player,” concludes Leow.

Shares in Cogent are up 2.5% or 2.5 cents at $1.015 or about 15 times FY17 earnings.