SINGAPORE (June 25): Electronic parts distributor Serial System is set to spin off a major part of its business in a listing on the Stock Exchange of Hong Kong. But, rather than gutting the company, the move could give the Mainboard-listed stock the valuation it seeks.

The listing of the Hong Kong subsidiary, Serial Microelectronics (HK), was approved at an extraordinary general meeting on April 6. It will cut Serial System’s stake from 91% to 68.25%. Serial System estimates that the subsidiary, which distributes electronic parts within Greater China, will have a minimum market value of US$220 million ($299 million) upon listing. This is based on an earnings multiple of 20 times, which the company says is in line with existing Hong Kong-listed peer companies. Serial Microelectronics reported earnings of US$11.4 million in FY2017.

That means Serial System’s expected post-listing stake of 68.25% is worth about US$150 million. By contrast, its market capitalisation as at June 18 was just $136 million, implying a price-to-earnings ratio of just 8.25 times. “If one of my subsidiaries is worth so much, do you think, as a group, we are undervalued?” says executive chairman Derek Goh, in an interview with The Edge Singapore.

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