On June 24, ZICO Capital, the independent financial adviser to TTJ Holdings’ independent directors has recommended that they should recommend minority shareholders to reject the offer. One of the reasons is that the amount needed to take TTJ private is less than the net cash position of the company.

On May 20, TTJ Holdings’ major shareholders via THC Venture made a voluntary conditional offer (VCO) for the shares in TTJ it doesn’t own at $0.23 cents per share. Teo Hock Chwee owns 84.4% and his daughter 0.1% of TTJ.

Teo has undertaken to accept the offer in respect of all his shares, as has Chiong Su Been, TTJ’s executive director and CFO.

Based on TTJ’s balance sheet as at Jan 31, 2022 (TTJ’s 1HFY2022), its net asset value (NAV) per share stood at $0.37, unchanged from July 31, 2021. Based on some assets held for sale, the adjusted NAV (ANAV) is estimated at $0.373. However, based on the net revaluation surplus of $30.8 million in a  valuation undertaken by valuers, the revalued ANAV (RANAV) works out as $0.46 as at Jan 31, 2022.

According to ZICO Capital, TTJ was in a net cash position as at Jan 31, 2022, and this would have represented 26.7% of the offer price. Following the completion of the disposal of land and factory in Johor for $13.5 million completed on March 29, 2022, net cash/share component is expected to constitute approximately 43.2% of the offer price. Hence 21.6% of TTJ’s RANAV would also comprise cash, ZICO Capital estimates.

<span class='see_also_inread'><b>See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/news/ma/keppel-infrastructure-trust-and-other-keppel-units-acquire-south-korean-waste-management?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Keppel Infrastructure Trust and other Keppel units to acquire South Korean waste management firm for $666 mil</a></b></span>

The offer price represents a 50% discount to RANAV, and 0.62x NAV, which ZICO Capital reckons is what some asset-backed stocks including developers are trading at.

Using enterprise value (EV), the EV/Ebitda ratio of the Group of 4.71x as implied by the offer price, is below the range of the EV/Ebitda ratios of the comparable companies which are trading at a median of 13.89x. For TTJ’s EV/Ebitda to approach 13.89x, its share price would be $0.56.

"As an illustration on the acquisition cost for all shares not held by the offeror and Mr Teo as at the latest practicable date, we note that the acquisition cost by the Offeror would amount to approximately $12.6 million, which is significantly lower than the group’s net cash of $34.8 million. We note that there is no indication that the offer is a final offer from the offeror,” ZICO Capital points out.

“Having considered carefully the information available to us as at the latest practicable date, and based on our analyses, we are of the opinion that the financial terms of the offer are on balance, not fair and not reasonable. Accordingly, we advise the Recommending Directors to recommend shareholders to REJECT the Offer,” ZICO Capital advises.

Patrick Wright, a shareholder who said that the privatisation offer of 23 cents was too low, now thinks that minority shareholders should not accept anything outside the valuations indicated by ZICO Capital. "The IFA’s valuation is 37 cents to 46 cents. I don’t see why minority shareholders should accept anything outside of this range. I note 37 cents would still represent a 19.5% discount to RNAV," Wright points out.

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