On 27 September 2023, BYDE (285 HK/HK$34.95, BUY) announced the formal agreement on the acquisition of Jabil's mobility business with detailed financial information of the target business and financing information. Previously on 28 August 2023, BYDE announced to acquire 100% of the equity interest in the target company and relevant assets at the cost of RMB15.8bn (US$2.2bn).
Financial Information of Jabil's Reorganised Mobility Business
In the announcement, BYDE reveals the financial information of Jabil's mobility business after reorganisation:
The business achieved revenue of US$4.3bn and net income of US$0.14bn for the year ended 31 August 2022. This represents a 4% YoY decline in revenues and 40% YoY decline in profit after tax.
The US$2.2bn acquisition price roughly represents a historical FY2022/FY2021 PE multiple of 15.4x/9.3x, respectively in our calculation.
The unaudited combined total asset value of the business was US$1.9bn as at 31 May 2023. The US$2.2bn acquisition price implies a PB ratio of 1.16x.
The FY2023 final financial data hasn't been available so it is hard for us to comment on whether it is a bargain trade at its face value. But based on FY2022 historical PE of 15.4x and latest PB ratio of 1.16x, the deal valuation appears fair given the overall weak investor sentiment on consumer electronics and all the de-rating. We believe BYDE eyes more on 1) the synergy between Jabil's iPhone casing business and BYDE's own iPhone parts business including cover glass, and 2) Jabil's strong software, IP, knowhow, management and talent pool.
BYD Will Back the Whole Deal by Offering US$2.15bn Shareholder Loan But New Financing May be Needed when the Loan Expires BYD, the parent company of BYDE, will offer a loan facility to BYDE amounting to US$2.15bn, which is sufficient to cover the whole acquisition price. The loan interest rate is calculated based on the SOFR (being Secured Overnight Financing Rate) plus 68bps. SOFR was 5.31% as of Sep 25, therefore BYDE will pay an effective loan interest rate of about 5.99% to BYD for this loan facility, in our estimate.
Such shareholder loan is repayable within one year from the disbursement date of the loan. BYDE intends to repay the loan by the net cash inflow generated from operation or conduct other fund-raising activities if needed.
We estimate BYDE had net cash position of RMB4.2bn as of 1H23 and could generate free cash flow to firm of RMB3.0bn from 2H23 to 2024. Together with the target business's own cash inflows, we expect BYDE might have a funding short fall of RMB7bn by 2024 when the BYD shareholder loan is repaid.