Sunvic

Sunvic - Recall two weeks back, Sunvic announced the proposed disposal of its acrylic acid (AA) and acrylate ester (AE) Taixing production facilities for an aggregate consideration of ~Rmb3.9b (~$1.53 per share). The buyer is a subsidiary of Euronext Paris-listed Arkema, a leading French chemicals producer with market cap of €5b. The latter’s support represents a vote of confidence of the quality of Sunvic’s operations. Under the deal terms, Sunvic will receive an initial payment of Rmb1.45b in exchange for Arkema’s initial 55% stake in the facility. The balance payment of Rmb2.45b for the remaining 45% stake will be carried out in subsequent stages by Dec ‘16. In aggregate, Sunvic will recognise a pretax gain of ~Rmb1.9b (~$0.75 per share) from the disposal. Assuming Sunvic uses the net proceeds to fully repay debt, the group will swing to a net cash position of ~Rmb2b from its current net gearing level of 86%. Subsequently, the group intends to continue to grow its intermediate chemical business in the PRC through the establishment of new facilities and expansion of new sales channels. On completion of the deal, Sunvic’s NTA per share will also rise from $0.83 to $1.49, which implies an attractive P/NTA of just ~0.4x. Seperately, CIMB had an unrated report last week wheer the house mooted the stock’s potential to hit $1.35 per share, based on a valuation 0.9x FY14 P/NTA. The house hypothesized that following the sale of Sunvic’s Taixing chemical production facilities, founder Mr Sun could consider privatising the company in the hope of relisting it elsewhere at higher valuation multiples. Such an event, if it pans out, would be a strong share price catalyst for re-rating.