Offeror says privatising the company will give it greater management flexibility to manage the group&rsquo s business

 

A CONSORTIUM led by two executive directors of Sin Heng Heavy Machinery has made a voluntary unconditional offer to take the mainboard-listed lifting service provider private at S$0.58 in cash per share, it was announced on Friday (Mar 14).

 

The offer was made by Maybank Securities on behalf of the offeror Tal United, an investment holding company incorporated on Aug 15, 2024.

 

Tal United is a consortium formed between companies Tal Holdings (TALHPL) and United Hope (UHPL), which are controlling shareholders of Sin Heng.

 

Tal United&rsquo s directors are Tan Ah Lye, executive director and chief executive of Sin Heng and a director of TALHPL Tan Cheng Kwong, executive director and deputy CEO of Sin Heng and a director of TALHPL and Teo Yi-dar, the sole shareholder and director of UHPL.

 

Sin Heng, through its subsidiaries, is in the heavy equipment rental business involving the rental of cranes and aerial lifts trading of new and used cranes and aerial lifts and sales and distribution of spare parts for the cranes and aerial lifts.

 

The company has a total issued and paid-up share capital of about S$43.1 million comprising 114,888,980 shares.

 

In a bourse filing on Friday, Tal United said it was making the offer with a view to delist and privatise Sin Heng.

 

It believes that privatising the Sin Heng will provide the offeror and the company &ldquo with greater control and management flexibility to manage the business of the group, respond to changing market conditions and optimise the use of the company&rsquo s management and resources&rdquo .

 

Clean cash exit opportunity

The offeror noted that in maintaining its listed status, Sin Heng has incurred &ldquo considerable&rdquo listing and associated costs, which includes compliance costs and time dedicated to regulatory and reporting obligations.

 

Should Sin Heng be delisted and privatised, it will be able to &ldquo substantially dispense with such burdens&rdquo and focus its resources on its businesses, investments and operations instead.

 

Tal United said the offer presents Sin Heng&rsquo s shareholders with a clean cash exit opportunity to realise their investment in the company&rsquo s shares at a premium over historical trading prices of the shares, without incurring brokerage costs.

 

This may otherwise not be possible, given the low trading liquidity of Sin Heng&rsquo s shares, it added.

 

According to Tal United, the offer price represents a premium of about 6.4 per cent over Sin Heng&rsquo s last transacted price per share of S$0.545 on Mar 13, 2025 &ndash the last trading day before the offer announcement.

 

The offer price also represents a premium of 5.8 per cent, 4.3 per cent, 7.6 per cent, 11.8 per cent and 19.3 per cent over the volume weighted average price per share for the one-month, three-month, six-month, 12-month and 24-month periods, respectively, up to and including the last trading day.

 

In addition, the offer price is higher than the closing share price of Sin Heng&rsquo s shares in the past five-year period up to and including the last trading day, except for Jan 17, 2025.

 

Tal United said it intends for Sin Heng to continue its existing business activities. It currently has no plans to introduce any major changes to the company&rsquo s existing business redeploy the company&rsquo s fixed assets or let go of the group&rsquo s existing employees in each case.

 

The offeror added that the offer price of S$0.58 in cash per share is final. It has no intention to increase the offer price.

 

At the time of the announcement, Tal United had received irrevocable undertakings from five shareholders amounting to 58.51 per cent of the total shares. The shareholders are TALHP&rsquo s Tan Ah Lye and his grandson Yuuki Ikeda, and UHPL&rsquo s Teo.

Sin Heng Heavy Machinery has been granted an option to purchase a property at Ghim Moh Road by BMAGR for a purchase consideration of $2.8 million, according to a Nov 5 bourse filing. 

 

The property, located at 21 Ghim Moh Road, comprises a two-storey leasehold shophouse. 

 

Under the acquisition, the property is being sold with a condition of tenancy ending on Nov 30, 2026. 

 

According to the group, the acquisition is expected to be made for investment purposes.

 

The proposed acquisition is set to be completed nine weeks from the date of exercise of the option. 

 

The proposed acquisition is not expected to have any significant impact on the group&rsquo s financial performance for the current financial year ending Dec 31. 

 

Sin Heng Heavy Machinery, which focuses on cranes and other equipment used for construction, has been stepping up its share buybacks since September, a month after it reported much improved earnings amid an overall construction industry recovery.

 

The most recent buyback was on Oct 9 when it acquired 261,800 shares at 49 cents each. This brings the total number bought back under the current mandate to 1.8 million shares, equivalent to 1.587% of the company.

 

Before this, the company on Oct 3 and Oct 4 bought back 263,800 shares and 263,000 shares at 48 cents each respectively. On Oct 5 and 6, it again bought back 142,300 shares and 135,200 shares at 48.5 cents each respectively.

 

The company was founded in 1969 by executive director and CEO Tan Ah Lye and was listed in 2010. On Aug 11, Sin Heng reported earnings in 1HFY2023 ended June was up 89.1% y-o-y to $3.3 million from $1.75 million. Revenue in the same period increased by 31.1% y-o-y to $34.7 million due to higher rental income plus the sale of cranes.

 

Year to date, the company&rsquo s share price has gained nearly 10% to 49 cents as at Oct 10, near its 52-week-high. However, that is still at a significant discount off its book value per share of 91.45 cents as at June 30.

 

In its earnings commentary, Sin Heng says it is &ldquo cautiously optimistic&rdquo about its businesses due to the ongoing construction of Singapore&rsquo s MRT lines and other infrastructure projects. However, in Malaysia where it has a smaller presence, the business will remain challenging because of &ldquo continued weakness&rdquo in the pace of the building of infrastructure projects. The weaker currency is not helping either. Sin Heng had earlier exited its third market, Myanmar, following the coup.

 

Sin Heng says it will continue to streamline and adapt its operations in line with the market conditions. With higher rates, inflation and a volatile forex market, its cash management will continue to be prudent. &ldquo Notwithstanding that, the group will remain open to explore other potential business opportunities that align with its long-term strategies,&rdquo the company says.

 

Diamonds on blockchains

 

Sarine Technologies, which builds equipment for the diamond industry, continued with its share buybacks. The Israel-based company, dual-listed on both the Singapore and Tel Aviv exchanges, bought back 35,000 shares at 32 cents each on Oct 9, the first trading day after Hamas militants invaded Israel. Israel has declared war and struck back, raising geopolitical tensions in the Middle East yet again and sending Israel&rsquo s stocks down. Sarine&rsquo s shares reached a 52-week-low.

 

The company started its current share buyback on Aug 15. As at Oct 9, 364,000 shares have been bought back, equivalent to 0.1% of the company&rsquo s share base.

 

On Oct 9, Sarine announced a collaboration with Tracr to provide a scalable, cost-effective system to help the industry track diamonds moving along the supply chains. Tracr is described as the world&rsquo s first fully distributed diamond blockchain platform, which can register rough diamonds at source.

 

On Aug 13, Sarine reported earnings of US$953,000 ($1.3 million) in 1HFY2023 ended June, down 85.4% y-o-y. Revenue in the same period was down 23.9% y-o-y to US$23.7 million. Sarine blames the poorer numbers on lower demand for its capital equipment and diamond scanning services, which, in turn, is because of dampened consumer spending amid higher inflation and economic uncertainty.

 

On Aug 28, Sarine announced it has engaged Global Close Alliances Group, an investment banking consultancy, to help &ldquo analyse and pursue means to maximise shareholder value.

 

LIM & Tan Securities has initiated coverage on Sin Heng Heavy Machinery with a &ldquo buy&rdquo recommendation and a target price of S$0.75, on the belief that the construction equipment rental company is well-positioned to benefit from the industry&rsquo s bounceback.

 

Despite expressing optimism about the stock, Lim & Tan said on Thursday (Nov 17) that its target price is &ldquo conservative&rdquo at 54.7 per cent below the valuation at Sin Heng&rsquo s last peak in FY2013. This is due to Covid-related hindrances on construction activities, as well as labour constraints and workplace safety concerns.

 

Analyst Ng Yong Rui recommended &ldquo buy&rdquo , adding that Sin Heng is currently trading at &ldquo distressed valuations&rdquo for an asset-based machine rental company. Its current trade level implies an enterprise value to earnings before interest, taxes, depreciation and amortisation ratio of one time.

 

The stock broker expected profit increases in H2 FY2022 and FY2023 as pent-up demand boosts the construction sector. The analyst predicted that the company&rsquo s H2 results will outperform those recorded in H1, to bring in a full-year net profit of S$4 million.

 

Ng noted that since the company shifted its focus to its profitable crane rental business in FY2020, the proportion of revenue from equipment rental rose to 51.8 per cent in FY2021 from 40 per cent the year before. As a result, net profit margin increased to 5.2 per cent in FY2021 from 2.2 per cent in FY2020.

 

Ng believed that this trend will continue, as the industry at large saw an increase of 40-50 per cent in crane rental rates between 2021 and 2022. He added that several construction companies expect crane rental rates to increase by 15-20 per cent in the next 12 months.

 

In addition, Sin Heng is unlikely to see new competitors in the crane rental space. According to Ng, barriers to entry are &ldquo extremely high&rdquo , and he predicted that an &ldquo accelerated rate&rdquo of business exits will occur when a S$1.4 billion government support package for the sector expires.

 

Said the analyst: &ldquo It is unlikely that there will be new entrants as the construction equipment business requires a wide range of crane and lifting solutions and a reputable track record. It is also capital expenditure-intensive. We expect the surviving market participants with strong balance sheets such as Sin Heng Heavy Machinery to perform well in the upturn.&rdquo

 

Ng also pointed out that Sin Heng is capable of shielding itself from macro headwinds. In his view, this business is &ldquo relatively inflation-proof&rdquo as the majority of the cost stems from the purchase of cranes.

 

The analyst added that Sin Heng can expand its existing fleet by taking advantage of a weaker Japanese yen, which has hit a historic low against the Singapore dollar. Sin Heng spends about S$9.2 million annually rejuvenating its fleet and capabilities. As the company purchases Kobelco and Kato cranes in yen, the weaker currency can help it offset some inflationary pressures.

 

Ng liked that Sin Heng has a strong balance sheet that supports a shareholder-centric management stance. He highlighted that the company paid out a dividend of S$5.7 million &ndash or S$0.05 per share &ndash in FY2021, representing a payout ratio of 150 per cent.

 

This was despite Sin Heng not having a dividend policy in place, as well as incurring a four-year high of S$13.8 million in capital expenditure that year. Ng believed that the company can sustain paying out &ldquo high&rdquo dividends of S$0.05 per share in the near term as profitability increases.

 

The analyst also hinted at the possibility of Sin Heng going private, in light of the company&rsquo s latest share buyback mandate in October 2021. Sin Heng purchased 600,000 shares at an average price of S$0.394. The company currently holds 12.9 per cent of the maximum number of shares it is allowed to have.

 

&ldquo This is Sin Heng&rsquo s most aggressive buyback (to date), indicating that current price levels are still attractive and the outlook is positive,&rdquo said Ng.