Adventa: Synergy, Valuation & Prospect

It was reported in The Edge Financial Daily today that"


US firm looking at Adventa acquisition?
Rubber glove manufacturer Adventa Bhd hit limit up yesterday on speculation that it could be a potential acquisition target by a healthcare firm based in the US...


My view:

If I were the US buyer, I will look at 2 things to decide whether to buy Adventa: i) synergy and ii) valuation

i) Synergy
The synergy is there as US healthcare firm could use the gloves for their own operation, e.g. their their workers may need to wear gloves when handling the drug manufacturing line. Besides, they can also look at new revenue generation source by selling the gloves in US. So, from synergy point of view, the intention is there...

ii) Valuation
The consensus is expecting Adventa to earn EPS of 30.8sen in FY2011 ending Oct 31. At yesterday close price of RM2.64, ADVENTA is trading at 8.6x forward PER of 2011.

Let's compare ADVENTA forward PER with LATEXX and KOSSAN. After adjusting their forward PER to end at 31 Oct and using yesterday close price as reference, LATEXX forward PER is 6.8x while KOSSAN is 7.9x. Rearrange it in simple way to compare using forward PER:


ADVENTA: 8.6x
LATEXX: 6.8x
KOSSAN: 7.9x

The only attractiveness is Adventa smaller market capitalization at about RM400m, but 8.6x forward PER is already 10% higher than KOSSAN forward PER.

So, from valuation point of view, it is not that attractive anymore.