Analysis of Tam Jai's privatization
#Tam Jai The major shareholder has proposed privatization. I've always wanted to write an analysis for everyone, but I was busy with wedding preparations recently, so I kept postponing it. Now I finally have time to write.
I estimate that many people don't hold Tam Jai, but I'll use this privatization event as a case study to help everyone learn more.
Key Event
Toridoll, the major shareholder of Tam Jai International, proposed privatization at HKD 1.58 per share (maximum cash consideration approximately HKD 556 million), representing a 75.6% premium over the last trading price of HKD 0.9.
History
In 1996, the first Tam Jai Yunnan Mixian opened. By 2008, due to differences in business philosophy, it split into "Tam Jai Yunnan Mixian" and "Tam Jai Sam Gor Mixian" operating separately. Later, in 2017, both were fully acquired by Japanese Toridoll Holdings for HKD 1 billion and HKD 1.1 billion, respectively.
IPO
Tam Jai International listed on October 7, 2021, with an IPO price of HKD 3.33 per share, oversubscribed by 28.58 times, attracting over 78,000 subscribers. However, the stock price fell below the IPO price on the first day, closing at HKD 3.08, down 7.5%. Since then, the stock price has continued to decline, dropping to HKD 0.9 by the suspension in February 2025, a 73% decrease from the IPO price.
Privatization Analysis (Major Shareholder Perspective)
From the major shareholder's perspective, holding 74% of the shares, privatization would require approximately HKD 556 million. Tam Jai International held about HKD 1.34 billion in cash as of the end of September, with no debt. Based on pre-privatization proportions, the major shareholder effectively holds HKD 992 million (74% of HKD 1.34 billion), while minority shareholders hold HKD 348 million. By paying HKD 556 million, the major shareholder can acquire the minority stake (HKD 348 million), effectively needing only HKD 210 million (HKD 556 million - HKD 348 million).
After privatization, the major shareholder can freely use the funds, save on costs associated with maintaining a listed status, and fully control the "Tam Jai" brand and established business model. This is a very favorable move for the major shareholder.
Privatization Analysis (Minority Shareholder Perspective)
For the six months ending September 2024, Tam Jai International reported revenue of HKD 1.4 billion, up 1.2% year-on-year, but net profit plunged 55.8% to HKD 36.068 million. Annualized profit is about HKD 72 million, giving a PE ratio of approximately 29x at the privatization price of HKD 1.58. Excluding cash of HKD 1.34 billion, the PE ratio drops to about 11x.
Comparing with Café de Coral and Fairwood, their PE ratios (based on annualized half-year profits) are 15x and 25x, respectively. Café de Coral's higher PE is due to its low market cap, with an actual market cap of about HKD 150 million after excluding cash of HKD 590 million. This comparison shows that the privatization price is not particularly high and not necessarily a must-accept offer.
However, Tam Jai International's business is clearly declining. Performance has been deteriorating, mainly due to 1. Hong Kong's economic downturn, 2. Northbound consumption, and 3. Intense competition. From an investment perspective, Tam Jai International has limited upside potential, with no clear way to reverse the decline.
Minority shareholders are in a tough spot. Despite Tam Jai International's substantial cash holdings, if the major shareholder decides not to distribute dividends and given the lack of liquidity in Hong Kong stocks, valuation is unlikely to improve, making it hard to profit. If minority shareholders miss this opportunity, it's unclear when they might get another chance to exit profitably.
Investment Opportunity
Finally, let's analyze whether there's an investment opportunity. At the time of writing, Tam Jai International's stock price is HKD 1.47, offering about a 7.5% upside to the privatization price of HKD 1.58. The privatization process typically takes 3-4 months, implying an annualized return of 22.5-30%. This is quite attractive, but investors should note that funds will be tied up during this period, and if the privatization fails, the stock price could drop significantly, posing a risk.
Conclusion
While the deal is highly favorable for the major shareholder, minority shareholders may have little choice but to accept, as the privatization price is still 75% above the last trading price. Considering Tam Jai International's weak fundamentals and the lack of liquidity in Hong Kong stocks, I believe minority shareholders should accept the offer, and the likelihood of privatization success is relatively high.
Disclosure: I do not hold any of the mentioned stocks.
The above is my personal opinion and does not constitute investment advice.
$ TAM JAI INTL.HK $MEITUAN(03690.HK) $BABA-W(09988.HK)
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