Activist Hedge Fund Quarz Sees 40% Upside in Sunningdale

(Bloomberg) -- Activist hedge fund Quarz Capital Management Ltd. said Singapore’s Sunningdale Tech Ltd. is “severely undervalued” and urged the company’s management to boost investor confidence by providing more information on its products, businesses and strategic plans.

Quarz has accumulated an almost 5 percent stake in the company, which makes and sells plastic components for medical, consumer and automotive products, and is looking to buy more, the firm said in an open letter obtained by Bloomberg News. It believes Sunningdale investors could see the stock rally more than 40 percent by 2020.

The company’s shares rose 4.3 percent to S$1.46 on Thursday, with trading volume of five times the three-month daily average. The gains trimmed Sunningdale’s loss for the year to 24 percent.

Sunningdale “welcomes constructive feedback from its shareholders and is encouraged by active shareholders participation,” the company said in a statement to the Singapore Exchange after the market close. It will “continue to explore all options that may unlock value for shareholders” and Quarz Capital’s recommendations will “receive the appropriate consideration.”

Co-founded in 2011 by ex-UBS Group AG investment banker Jan Moermann, Quarz has publicly targeted four Singapore companies since 2016. Last year, it asked International Healthway Corp. to oust its board, saying the company was deeply undervalued and poorly run. And in 2016, it called on Metro Holdings Ltd. to return excess cash to shareholders.

Quarz said Sunningdale should distribute more than 60 percent of its core net profit to provide an “attractive dividend yield” of around 7 percent, while maintaining about S$25 million ($18 million) for investment and around S$17 million of cash flow. It sees Sunningdale’s free cash flow and balance sheet strengthening next year because the company has already invested significant capital expenditure in 2018. Core net profit should reach at least S$31 million in 2019, Quarz estimated. Net income in 2017 was S$22.7 million.

Sunningdale has been undervalued by shareholders who don’t understand its “engineering expertise, products, recurring cash flow, growth catalysts and strong corporate governance,” and have a short-term focus on foreign-exchange gains and quarterly earnings, Quarz said.

The company is a “global player in precision plastic engineering” with long-term clients such as German car-parts maker Continental AG, pharmaceutical firm Roche Holding AG and HP Inc., the hedge fund said. It also said Sunningdale should return more than 50 percent of its proceeds from the proposed sale of a factory in China to investors.

Sunningdale’s largest owners include Chairman Koh Boon Hwee, who has a 15.7 percent stake, and Singapore tycoon Goi Seng Hui, who owns 8 percent, Bloomberg data show.

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