Almost there! After a long and extended series of negotiations spanning over 6 months, Manufacturing Integration Technology (MIT) announced yesterday that it has entered into a conditional share purchase agreement with Ningbo MIT Semiconductor Company Limited. The latter is ultimately, a China Fortune-Tech Capital Co., Ltd’s (CFTC) designated nominee. CFTC was incorporated in February 2014 in Shanghai, China by Semiconductor Manufacturing International Corporation (SMIC) and other investment associates as part of the nation’s drive to become a key semiconductor hub and reduce reliance on imports.
As part of the agreement, MIT will dissolve its entire shareholding interest in MIT Semiconductor Pte Ltd, a wholly-owned subsidiary, and its subsidiaries namely, i.PAC Manufacturing Pte Ltd and Generic Power Pte Ltd. These subsidiaries are engaged in the semiconductor and related businesses. Following the disposal, MIT will focus on its contract equipment manufacturing and customised automation thereafter.
Headquartered in Singapore, MIT is a public listed company that is listed on the Mainboard of the Singapore Exchange Ltd (SGX) since 1999 under the ticker, M11. As at 18th of July 2018 closing, MIT traded at S$0.33 with a market capitalization of S$75.89 million.
For those that are keen to understand the potential catalysts that led to this deal or are interested in finding out more about the semiconductor’s landscape from MIT’s perspective, feel free to read a separate analysis published here.
KEY SUMMARY OF DEAL
1. Acquirer: Ningbo MIT Semiconductor Company Limited (Designated Nominee of CFTC)
2. Acquiring Business: MIT Semiconductor Pte Ltd, i.PAC Manufacturing Pte Ltd & Generic Power Pte Ltd
3. Acquisition Price: S$84.5 mil based on 10.6X of FY17 Semiconductor Segment’s NPBT
4. Payment Terms: Two tranches, 80% following deal completion and 20% following fulfilment of salient terms
5. Conditions Precedent: Approval from shareholders for Proposed Disposal at EGM; failure which, compensation of S$200,000 to be paid out
6. Deal Completion: 5 business days following satisfaction or waiver of the conditions precedent
7. Use of Proceeds: Entire Net Proceeds to be disbursed back to shareholders
In determining the share price of MIT following this announcement, I had used the NTA of its legacy business (i.e. non-semiconductor business segments) which has been sensitised to reflect a true indicative salvage value as well as the cash disbursement based on the announced consideration.
Based on the net proceeds obtained from the disposal itself (S$77.1 mil), the value per share works out to S$0.34 which already represents a 3% upside from the last traded price. This is unsurprising given that the indicative acquisition price of S$84.5 mil is significantly higher than the market capitalization of S$75.89 mil. My base case calculations give an implied share price value of S$0.38, representing an upside of 16.6%. At the other end of the spectrum, my bull case share price can reach as high as S$0.40, representing an appreciation of 20.2% from the current price. As you can see below in the assumptions, existing assets have been heavily discounted as a matter of prudence.
Figure 1: Revenue by Business Segment
Figure 2: Assets & Liabilities by Business Segment
Figure 3: Implied Multiple
Figure 4: Share Price Valuation
Figure 5: Share Price Waterfall
Disclosure: I own shares in MIT.
Edited by: Kenny Chia.