Inari Amertron's Lumileds deal unlikely to boost near-term earnings
The company announced recently a strategic partnership with China's Sanan Optoelectronics Co Ltd to jointly acquire the entire stake in Lumileds International, including its 11 subsidiaries across Asia and Europe, for US$239 million (RM1.03 billion).
The acquisition was valued at a price-to-book (P/B) multiple of 1.23 times.
According to Public Investment Bank Bhd (PublicInvest), this is considered fair given the company's loss-making status and ownership of the proprietary aluminium gallium indium phosphide (AlGaInP) LED technology patents.
"However, due to the intense competition in China's automotive market, we believe the turnaround for Lumileds will take time and is unlikely to materialise in the near term," it said in a note.
PublicInvest noted that the proposed acquisition will be fully satisfied in cash and executed through a special purpose vehicle (SPV) incorporated in Hong Kong.
It said the Shanghai-listed Sanan will own 74.5 per cent, while Inari will hold 25.5 per cent of the SPV, which will acquire 100 per cent equity interest in Lumileds International.
"Inari will invest a total of US$71.4 million (RM307 million) for a 25.5 per cent stake and future working capital requirement.
"Given the limited upside potential, we downgrade our call to Neutral, maintaining our target price of RM2.30," it added.
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