KERRY GROUP may need to revise its privatisation proposal upwards to match the recent 13 per cent rally in property stocks since it announced a second bid of HK$9.50 per share, says JP Morgan, which has issued a 'neutral' recommendation on the stock. Kerry Properties announced on Monday that its implied book net asset value (NAV) was lowered to $15.97 per share as of April 30 from $17.94 on December 31, a reduction of 11 per cent. This was due to a change in accounting treatment on deferred tax and a revaluation deficit on the company's properties.
The dispatch of the scheme document has been postponed by 10 days to June 30 to allow shareholders to digest the revised NAV. JP Morgan says the move gives Kerry Group more time to revise its offer.
Based on the offer price of $9.50 and implied NAV of $15.97, the discount is still huge at 41 per cent. The proposal will probably be blocked unless a higher bid is made, says the report.
It believes the chance of success will be high if the Kerry Group raises the price to between $10.40 and $11.20, representing a 30 per cent to 35 per cent discount to NAV. Assuming the price is $10.40, the group needs to fork out only an additional $356 million. At $10.74, which would reflect the rebound in property stocks, the discount would narrow to 33 per cent, which is more acceptable compared with its big-cap peers' 23 per cent discount to NAV and its mid-to-small-cap peers with about 50 per cent discount, says JP Morgan.
The counter closed at $9.40 on Friday.