Filipino Investors Should Think Twice in Getting in the Integrated Micro-Electronics Offering


Estimated offer price is still at high premium compared to historical valuation average

On January 30, Integrated Micro-Electronics or IMI announced an approval of its stocks right offer. The offer is still available for interested investors as IMI shareholders as of February 9, 2018, will be granted the rights.

IMI is expected to offer 1 share for every 5.3351 common shares held by investors. The offer period is from February 19 to 23. If an individual has 100 shares, he would be offered ~19 shares to be bought at an estimated discount.

IMI intends to raise ₱5 billion to be used for the company’s budgeted capital expenditures and debt refinancing.

In estimation, IMI would probably put its offer price at ~₱14-15/share as it plans to issue 350 million new shares to reach the ₱5 billion goal (5 billion divided by 350). This would indicate a nice 68% discount at which IMI’s stock price was trading as of 9:20 pm CST, 2/1/2018.

According to its press release, AC Industrial Technology Holdings, IMI’s controlling shareholder, and Resins Incorporated, which beneficially own an aggregate of 63.46% of IMI, have committed to purchase their entitlement of the rights shares and any unsubscribed shares.

In review, IMI reported an impressive 29% revenue growth for its January to October 2017 operations compared to its year-ago figures, while profit contrastingly fell 20% secondary to higher expenses in relation to plant relocation costs in China, particularly Shenzhen City were urban redevelopment projects have affected IMI.

As observed, all of IMI’s businesses experienced overall increase especially its UK business that was recently acquired from STI (80% interest for $54.7 million). IMI generated 41% of its business revenue from its automotive segment.

According to filings, the newly acquired STI generated $29.23 million revenue and $1.33 million in losses before tax for IMI since the time of acquisition.

“IMI is pursuing this value enhancing acquisition to expand its customer base into the aerospace and defense segments and to support its market specialization strategy in the industrial segment. As regional manufacturing picks up steam, we are expanding our operations to locations near our global customers in the United Kingdom and grow our support from our Philippine home base.”

Arthur R. Tan, IMI Chief Executive Officer (Source)

Although this acquisition has yet to bear fruits for IMI, any future changes on this segment should be observed.

As of October 2017, IMI had a book value of $250 million and $266 million in debt (including loans and trust receipts payables). Overall cash also has fallen $19 million year over year to $67.6 million.

In the past three years, IMI raised $50 million in financing activities while generated $16 million in free cash flow.

Meanwhile, at a speculated ₱14/share offering, this would indicate a price-book value ratio of 2.4x (vs. industry 2.78x). This is quite expensive as IMI’s five-year price-book average of 1.2x.

Disclosure: I have shares in IMI.

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