WHA Corporation

WHA Corporation Plc (WHA)

Investment thesis

We attended WHA’s analyst meeting, where management unveiled further details of the planned buyout of HEMRAJ. We believe the acquisition will create immediate value for WHA shareholders—we estimate 22-31% value upside, based on the firm buying from 51% to 100% of HEMRAJ’s shares (pushing up WHA’s value to Bt37.75-Bt40.55/share). In our analysis we used long-term PER pegs of 15.0x for HEMRAJ and 21.8x for WHA. Our BUY rating stands with YE15 target price of Bt37.75.

Acquisition details and business plan revealed

The Rights Offering (RO) price has been finalized at Bt25.50 apiece at a ratio of 2.75 existing to one new share with a maximum of 359.5m additional shares.  WHA-W1 conditions are unchanged. The bank finance has been structured into two tranches—a Bt28,235m two-year bridge loan and a Bt6,500m seven-year loan. The final approval hurdle will be the EGM on Feb 5. The RO subscription period will be Feb 24-March 2 and the tender offer for HEMRAJ with run March 6-April 10. WHA also said it plans to start offering built-to-suit factories and lower-end warehousing after the acquisition.   

No concerns over funding, tender offer or debt repayment

We believe that WHA will transact the acquisition successfully. The firm will need to pay down the debt taken on for the buyout, so there will be sales of non-core assets. Further sources of repayment will be sales of warehouses, factories and office space to REITs. We estimate that as of end-Sept 2014 the combined assets of HEMRAJ and WHA that could be spun off to REITs totaled about 660k sq.m. Moreover, we expect WHA’s core warehousing business to pick up again during FY15, which will help build the size of its leased assets.

Too soon to quantify the synergies

The possible synergies from the acquisition include sharing the customer base, stronger bargaining power for construction, procurement and financing and the ability to offer one-stop services, such as bundled industrial estate, rental factories and distribution center clusters. However, at this point, it’s too soon to quantify the scale of synergistic benefits or when the synergies will be realized. Industrial estate land sales and factory rentals are expected to start recovering by 2H15 at the earliest.