Again,
another low-profile company in Bursa Malaysia, DKSH Malaysia Berhad, is looking
for delisting.
The
major shareholder, DKSH Holding Ltd. via its subsidiary DKSH Resources
(Malaysia) Sdn. Bhd. plans to privatize the company at RM6.15 per share, via
the Share Capital Reduction (SCR).
When
I received this privatization deal from the DKSH’s largest shareholder, frankly
speaking, I have mixed feelings about this news.
I am
happy because I could liquidate my DKSH stocks. Meanwhile....
I am
sad because I might not be able to enjoy the subsequent growth phase of DKSH,
after DKSH reported very strong Q3-2025 quarter earnings.
A
very minor shareholder like me, of course, has no bargaining power about the
plan. After all, my stake portion in DKSH is simply too insignificant to have
any major impact on the ultimate decision made during the upcoming EGM.
However, the 2nd largest shareholder of DKSH, i.e., Pangolin Asia
Fund, could have some bargaining power on this privatization offer.
Pangolin
Asia Fund holds about 4.3 million DKSH shares, representing about 2.71% of
total DKSH shares issued (~158 million shares). The largest shareholder DKSH
Resources (Malaysia) Sdn. Bhd., the one that intends to privatize DKSH at RM
6.15/share, holds ~117 million shares. In other words, Pangolin holds 10.6% of
total minority shares, which is more than enough to vote against the
privatization offer via SCR. Note that SCR exercises to take a company private
require high thresholds (often ≥75%
approval and ≤10%
rejection among minorities).
Recently,
Pangolin has openly rejected the offer (Source:
https://www.enanyang.my/news/20251213/Finance/1101091). In short, if Pangolin votes
against the offer during EGM, story ends and privatization fails. And, DKSH
share price might fall to the pre-offer level, around RM 5.2+.
A
pain for minor shareholder, isn't it?
Now,
let us look into the reason why Pangolin Asia Fund rejects the offer.
Well,
it is all about valuation. Pangolin argued that the offer price does not
reflect the full potential of DKSH Malaysia (which I agree totally). Pangolin
believes that in 10 years’ time, DKSH might trade at around 15x PER, as the
company is growing and might attract more liquidity to the stock. Let us delve
into the earning power of DKSH (see below), which is impressive as both revenue
and profit are growing since year 2020, thanks to their operational efficiency
and market expansion effort (consistently securing new clients in both the
consumer & healthcare sectors).
Now,
back to the opinion of Pangolin that DKSH could trade at 15x in 10 years’ time.
For me, frankly speaking, the chance is rather slim. DKSH is a good company all
this while, but why not many peoples bother to even look at it? Well, I think
the main reason is the low liquidity of the stock (low-profile company), and
the company is not operating in “sexy” themes like AI, data centre and stuffs
like that. Other small fund managers would not dare to buy in as it could be
hard for them to exit later. Plus, the dividend is not that high (at least at
the current moment) that can attract those dividend-seekers to buy the stock.
Of
course, I am not denying that DKSH should trade at higher PE multiple. It
should. That’s the reason why I am accumulating the stocks since 2022. However,
coming to the reality of market perception, it is quite challenging for DKSH to
enjoy a fair PE multiple (at least the same as its peers in F&B and healthcare
industries) considering all the constraints I mentioned above, isn’t it? The
same story goes to another favourite stock of mine, HLFG.
In
fact, the story of DKSH privatization via SCR is quite alike to the privatization
deal of Selangor Properties Berhad (SPB) in 2018. During that time, again, the same
(and vocal) minor shareholder Pangolin Asia Fund rejected the first offer in
public (Source: https://theedgemalaysia.com/article/dissenting-voices-selangor-properties-privatisation-offer).
What happened next? Let us look at the timeline below:
Oct
2018: Offer Price RM5.70 (rejected by Pangolin in public)
Dec
2018: Offer Price revised to RM 6.00
Jan
2019: Offer Price revised to RM 6.30 (accepted during EGM in Feb 2019)
Could
the same price revision of SPB happen to DKSH?
Well,
I am not sure though. It could, if the offeror (DKSH Resources Malaysia Sdn. Bhd.)
is very desperate to delist the company. If not, they might just abandon their
plan and life moves on.
For
me, personally, the offer price is very close to my calculated intrinsic value
of the company, based on the current earning level of DKSH. Of course, if DKSH’s
business growth persists, it should worth more than the current offer price of RM
6.15. But who could read the future?
To minimize the risk, I will sell a minor portion of my stake in DKSH. The remaining portion of my stake, hopefully, could be sold at a higher price if the take-over price is revised (hopefully).
