Mergers & Acquisitions

TCL unveils plan to privatise its Hong Kong-listed smartphone business

Move is the latest example of a mainland Chinese company seeking to delist from the Hong Kong bourse

PUBLISHED : Monday, 06 June, 2016, 11:21am
UPDATED : Monday, 06 June, 2016, 6:34pm

Shenzhen-listed electronic product manufacturer TCL Corporation announced Monday plans to privatise TCL Communication Technology Holding, its Hong Kong-listed smartphone business, in the latest case of a mainland company seeking to delist from the Hong Kong bourse.

The goal of the privatisation was to “maximise the interest of the shareholders and optimise the company’s business structure,” TCL Corporation said in a Chinese-language announcement to the Shenzhen Stock Exchange.

After the transaction, TCL Communication will be a wholly-owned subsidiary of TCL Corporation and be delisted from Hong Kong, the filing said, without disclosing the offer price for the privatisation.

TCL Corporation controls a 65.23 per cent stake of TCL Communication through a wholly-owned subsidiary, according to the filling.

The proposal is pending the approval of the independent shareholders of TCL Communication, as well as regulators in Hong Kong, the filing said.

The move comes after Hong Kong-listed Dalian Wanda Commercial Properties announced in April its plan to privatise and relist on the mainland. Peak Sport Products, one of China’s largest sports goods manufacturers, said two weeks ago that its controlling shareholder was considering a buyout plan and may delist from the Hong Kong bourse.

The valuation of TCL Communication, with an 8 to 9 times price-to-earnings (PE) ratio, is quite “reasonable” compared with its peers in the Hong Kong market given that the firm’s profitability has been under pressure, said GF Securities Hong Kong Brokerage analyst Joseph Ho.

The smartphone maker saw net profit for the three months ended March 31 fall 92 per cent year on year to HK$14.25 million, with revenue decreasing 17 per cent owing to the strengthening US dollar and the slowdown in global sales of handsets.

There has been some speculation that TCL Corporation is restructuring its business
Hong Kong based analyst

Compared with the 30 to 40 times PE ratio of technology firms listed in Shenzhen, however, the valuation is far cheaper, a Hong Kong-based analyst said, asking to remain anonymous.

It is still uncertain whether TCL Communication will be relisted on the A-share market, but as far as Hong Kong is concerned it was a loss as shares of another mainland firm will not be tradable, GF’s Ho said.

Market rumours also said TCL Corporation was considering a spin-off listing of its subsidiary China Star Optoelectronics Technology (CSOT), a maker of television displays, the Hong Kong-based analyst said.

“There has been some speculation that TCL Corporation is restructuring its business,” the analyst said. “TCL Communication has been transforming its business in Greater China” by shifting from relying on local telecoms operators to sell its products to a direct-to-consumer sales model, the analyst added.

A spokesman for TCL Communication declined to comment on the rumour, saying that issues regarding the privatisation are subject to an official announcement.

TCL Communication, which listed in Hong Kong in September 2004, was suspended from trading on Monday. Its shares had slid 2.45 per cent so far this year to HK$5.57 before the trading halt. The stock has lost 44.08 per cent from a more than five-year high in July 2014.

Shares of TCL Display Technology ended 7.25 per cent higher at HK$0.74, while TCL Multimedia Technology, which focuses on the television business, ended 1.55 per cent higher at HK$4.6.

TCL Corporation shares also inched up 0.59 per cent to 3.41 yuan in Shenzhen.