Tuesday, October 20, 2009

Memstar RMB500m Investment for 55.8% stake in SWG (5MS)


Company Info:

Memstar Technology Ltd. specializes in the research and development, manufacture and application of polyvinylidene fluoride (PVDF) hollow fiber membrane and membrane products. Its membrane products are used in both industrial and domestic/commercial applications. The industrial applications are the pressurized membrane modules and submerged membrane modules that are used in water/wastewater treatment, water reclamation, seawater desalination, food, pharmaceutical, chemical, power generation, petroleum, bio-separation and other separation processes. The domestic/commercial applications include membrane water purifiers or integrated water purifying systems for households, commercial buildings, small businesses, hotels, schools and hospitals. Its subsidiaries include Memstar Pte. Ltd., Memstar (Guangzhou) Co., Ltd and Memstar (Mianyang) Co., Ltd.

The deal is with the Shenyang Municipal Government with the following details
• To set up an entity, targeted to be a major membrane technology based water player in North China.
• Water and wastewater treatment assets of combined capacity of more than 730,000 m3/day will be injected into the entity by SWG in the initial phase (which is equivalent to approximately 50% of Singapore’s entire daily water or
wastewater treatment capacity).
• Potential to upgrade existing facilities using Memstar’s PVDF membrane products and technology.

What interested me to research future was the phrase "SWG will guarantee a return on investment 12% per annum, which is approximately RMB55.8m for the Company's effective interest" and a government involvement.



I tried to find the IPO details for competitors since I don't know much about the competitive water membrane industry except for Hyflux and United Envirotech. However, I realised it had changed names several times. From the homepage of Memstar
The Company was incorporated on 12 June 1979 as Form Pte Ltd. On 14 August 1997, it was converted to a public limited company, at which time the name of the Company was changed to Form Holdings Ltd. It then changed to MediaStream Limited in May 2000. The Company changed its name from MediaStream Limited to Memstar Technology Ltd (“Memstar”) on 12 September 2007 upon the successful completion of the acquisition of Memstar Group.


Form Holdings was a producer of music album for various industry. Totally unrelated to the current business, so I decided not to not look further.

Investment tips:

Why not?
  • The document states it is only a head of agreement (not binding I think)
  • No dates of when the plan will start
  • Harder to find/get information since the place is in China. I like China outlook but hate to search in Chinese...
  • No knowledge of competitive edge of Memstar. I know nothing of water membrane technology and how much better is Memstar vs. competitor in Singapore, or even other countries. I do know Memstar is pretty cash rich currently.
  • 39.3% of the market capitalization will be in this deal. So any failure/natural disasters, etc will impact the company severely.


I considered for quite a while and decided to just watch and wait for more further development about it. I might regret if the stock price rises and lose the opportunity but nevertheless, I cannot think of a exit strategy so I decided not to take any action.

References:

  1. SGX - Memstar announcement of deal
  2. Wikipedia - Shenyang
  3. Memstar Technology

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