Viz Branz

OCBC on 4 Sept 2012

In an update to its share sale announcement back in Jul, Viz Branz (VB) announced yesterday that its substantial shareholder and one of the potential interest parties had entered into a non-binding indicative preliminary letter of indication of interest (LOII) to facilitate the advancement of further discussions. Following this update, VB will put its proposed one-for-one bonus issue on hold to prevent any complications should the share sale eventually materialize. While the LOII is non-definitive and is generally non-binding, we view the update as a positive development in a potential share sale. As VB’s share price increased 4% since our last report on 28 Aug (+113% on a year-to-date basis), we downgrade our rating to HOLD with an unchanged fair value estimate of S$0.74. In addition, we reiterate our view that should the share sale take place and an eventual takeover materializes, we are only anticipating a small premium of 2% (based on analysis of previous acquisitions/takeovers).

Progress on share sale
In an update to its share sale announcement back in July, Viz Branz (VB) announced yesterday that its substantial shareholder and one of the potential interest parties had entered into a non-binding indicative preliminary letter of indication of interest (LOII) to facilitate the advancement of further discussions. While the LOII is non-definitive and is generally non-binding, we view the update as a positive development in a potential share sale as it shows significant progress.

Bonus share issue on hold
Back in late May, VB had proposed a one-for-one bonus share issue in an effort to boost the liquidity of its shares and broaden the shareholder base for the company. However, following this share sale update, VB will place this plan on hold to prevent any possible complications should a share sale eventually materialize.

Upside limited
Since our recommendation upgrade last week (28 Aug), VB’s share price as appreciated by 4% (vs. a decline of 0.9% for the FTSE Straits Times Index), and this has diminished the upside potential for the counter in our view. While the company turned in a strong set of FY12 results and has promising growth prospects – increasing demand from China, high acceptance rates for ASP increases, and the better than expected easing of VB’s cost structure – we wish to remind investors that the counter has increased by more than 113% on a year-to-date basis. Furthermore, based on our previous analysis (report dated 12 Jul 2012), we are only anticipating a small premium of 2% should a share sale and an eventual takeover materialize.

Downgrade to HOLD
Based on the lower upside potential, we downgrade the counter to HOLD on valuation grounds but maintain our fair value estimate of S$0.74.