Hume Industries to sell out Hume Fibreboard to Evergreen Fibreboard

On 23 June 2008, Hume Industries (3328, 谦工业) announced that they had entered into a Business Transfer Agreement with Evergreen Fibreboard (Nilai) Sdn Bhd and Evergreen Fibreboard Berhad (5101, 长青纤维板) to dispose of the Assets, Liabilities, activity, business and undertaking pertaining to the manufacturing and sale of medium density fibreboard and related products and activities carried on by their wholly owned subsidiary Hume Fibreboard Berhad for a total consideration of RM213.23 million, to be satisfied by way of cash of RM170 million and the balance of RM43.23 million by the issue of 33 million new ordinary shares of RM0.25 each in Evergreen Fibreboard at an issue price of RM1.31 per share.

Evergreen closed at RM1.30 yesterday (24 June), dropped by 3 sen, while Hume Industries closed at RM3.88, rose by 8 sen.

I see this as a good deal for Hume Industries (which I am one of its minority shareholders) because after the deal:

• Hume Industries will hold a 6.43% interest in the enlarged and paid up capital of Evergreen. This will probably make Hume Industries to be the 5th largest shareholder in Evergreen then.
• This deal will result in a gain of RM114 million to Hume Industries, and will rise its EPS by 64 sen.
• The NTA of Hume Industires will be risen by 64 sen.
• The cash balance of Hume Industries will further strengten from the current RM131 million to RM301 million.

Evergreen has 480 million issued shares, and its 1st quarter profit after tax for 2008 stood at RM30.305 million. Assuming that its full year profit after tax to be RM120 million (without taken into the consideration of this acquisition of Hume Fibreboard) , with the price of RM1.31 per share, Hume Industries is obtaining the 6.43% shares in Evergreen at the PE of 5.24 only, which is a very good deal. Below is the calculation for the mentioned PE:

PE = Price/EPS = 1.31 / (120 / 480) = 1.31 / 0.25 = 5.24

Evergreen has pretty good fundamentals, showing satisfactory growth over the past 5 years. Its profit after tax has grown 5 times (500%) from RM21.725 million in 2003 to RM118.656 million in 2007. This deal would further increase Evergreen's production capacity and would make them the largest fibreboard producer in Malaysia and the top 12 producers in the world.

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.