Adampak – Signed, Sealed and Delivered!

This morning, at 8.30am, I dropped a pink envelope into the Singpost letterbox. Contained in the pink envelope was the acceptance letter to sell off my Adampak stake to Navis Capital. Navis made an offer to buy over Adampak at $0.42/share.

My initial plan was to wait out till around 24th May to accept the offer. However, I accepted the offer much earlier as Navis had acquired 88.76% of Adampak as of yesterday and it was no point holding out any longer. This evening, after posting my letter, news was released that Navis had acquired 91.74% of Adampak and has exercised the right to completely acquire Adampak. It was a “right” timing to post my letter, so to speak.

Now, I have to look for other companies to invest my funds in…

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BREAKING NEWS: Adampak to be acquired by Navis Capital

Just hot off the press – Adampak has been offered to be bought over by Navis Capital at $0.42/share (Offer Price). Current market price is at $0.345. This is a premium of 21.7%. For more information, check out the SGX announcement.

Adampak has been halted from trading since 30th March 2012, pending this announcement. Trading is still halted at the time of writing. At the price of $0.42/share, the P/E ratio works out to be 17.4. This will be the highest ratio ever since FY 2005. The ratio is high due to the decrease in earnings for FY2011, mainly due to the Thailand flooding.

For most shareholders, I guess it will be a bittersweet moment as they will be unwilling to let a gem go but at the same time, cash in due to the uncertainties surrounding the HDD market.

Adampak SWOT Analysis

Strengths

  • Good numbers and better than Brady’s (better NPM, ROE, ROA, div yield, lower PE than industry)
  • Barriers to entry – stringent requirements; strong relationship with clients (Seagate, Maxtor, HP, WD) and clients want reliability; established track record
  • Integrated capabilities and production facilities
  • 70% repeat customers
  • Management holds around 40% of company
  • Experience of management – chartered company through many crises including the recent Thailand flood; would have experienced many challenges over the years and learnt from it

Weakness

  • Heavy dependence on HDD sector (56% in FY2010. Out of this, 36.5% – die-cut parts)

Opportunities

  • RFID
  • Merger and acquisition – can acquire smaller companies and can also be acquired by bigger boys (founder owns 32% of company and it 62 years’ old); IR said private equity funds have approached Adampak but management not selling as right price not quoted; can be acquired by bigger boys like Brady which wants to expand into Asia
  • Expansion into non-electronics sector
  • Rise of emerging economies (China and India) – need for cheaper HDDs even if SSDs take over
  • Samsung & Seagate merger and WD & Hitachi merger – able to provide for more players

Threat

  • HDD decline – but SSD has huge limitations like high volatility and servers still need HDD
  • USD risk – over long-term, this will be naturally hedged
  • Natural disaster in Thailand – Seagate’s and WD’s shipping forecast has increased though.