Low-ball offer

Italian cruise shipbuilder, Fincantieri,has agreed toacquire 50.75% of SOH for S$1.22/share, a low-ball offer, in our view. Though SOHcould succumb to some near-termselling pressure, we believe its fundamentals couldeventually providesupport at S$1.30-1.40.

Hence, we remain Neutral with unchanged EPS estimates and target price (blended valuations, implying 7.8x CY13 P/E and2.7x CY12 P/BV). We could revisit the stock once we get more colour from SOH.

What Happened

Fincantieri has agreed with STX Europe to acquire 50.75% of SOH from STX Europefor S$1.22/share. The price represents a discount of 12.9% to SOH’s closing price on 20 Dec and 17.5% discount to itsweighted average price inthe past three months (S$1.48/share). The acquisition is expected to take place within the first four months of 2013 (after pre-conditions arefulfilled). After which, a mandatory cash offer for the remaining shares will be made, in compliance with takeover/merger rules in Singapore.Fincantieriwill use itsinternal resources and a syndicated loan.

What We Think

We weresurprised atthe low sale price,which values SOH at 6.5x CY13 P/E and 2.2x CY12 P/BV. Though we understandKorean parent company STX Corp’s urgency to restructureits balance sheet,the sale priceundervaluesSOH, in our view.Fincantieri also does not intendto maintain the listing status of SOH. However, we think that SOH may remain listed, given the low offer price.The sale price represents21.7%, 19.9%and 17.5% discountsto itsvolume-weighted average price inthe past 12, six and three months respectively. Lastly, recall that thatOch-Ziff’s average cost for its 12% shareholdingwas roughly S$1.33/share.

What You Should Do

Though we expect near-term selling pressure when itstrading halt is lifted, we believeSOH’s fundamentals could eventually provide some support at S$1.30-1.40(comparable to theaverage 7.3x CY13 P/Efor smaller SGX-listed OSV builders). Hence, maintain Neutral.