Friday, December 18, 2009

Will the Lion Roar?

MOS last wrote about Lion Asiapac (LAP) in late September. Following the disposal of its entire stake in the Chinese automaker, LAP had attempted to takeover an Australian listed mining firm Polaris Resources. The bid has since fallen through after a competing bid was deemed to be more attractive by Polaris shareholders.

The failed bid raises the possibility that LAP may return more cash to shareholders in the coming year. Besides embarking on a share buyback program, shareholders are likely to demand more than the usual 1 cent per share dividend if the cash continues to sit on the LAP's balance sheet.

We estimate that the net cash per share to be approximately S$0.47. As a result of the cash laden balance sheet, buying interest has returned to the stock, leading it to close at S$0.36 today, near its 52 week high of S$0.37. LAP has doled out special dividends before. Of note was in 2006 where a payout of 5 cents was paid that financial year. Assuming a total payout of 5 cents at the current market price of S$0.36, LAP would have a dividend yield of 13.8%. Hence, expect LAP to trade substantially higher if there is more certainly of a special pay day.

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