Asia Securities, a Sri Lankan investment firm, views the voluntary exit offer made to minority shareholders of Expolanka Holdings Plc (EXPO) as a positive development. In a recent report on the logistics sector, Asia Securities analyzed the offer in the context of a normalizing freight market post-pandemic.
EXPO’s share price surged in 2021 and 2022, reflecting the company’s record performance during that period. However, with the freight industry returning to normalcy, the share price has declined. Asia Securities believes the Rs. 185 per share exit offer is attractive given their current fair value estimate for EXPO.
Their reasoning is based on several factors:
- Normalized Freight Environment: Global freight rates have stabilized near historical averages despite temporary disruptions in the Red Sea route. This suggests limited potential for significant rate increases in the near future.
- Modest Profitability Recovery: While a modest rebound in profitability is expected for EXPO in FY25E due to rising freight volumes, Asia Securities doesn’t foresee a return to the highs witnessed during the pandemic.
- Potential Delisting Impact: If the delisting goes through, EXPO’s stock is likely to depreciate further due to the uncertain financial outlook and lack of active trading.
EXPO has suffered losses in the past four quarters due to declining freight rates. Although some recovery is anticipated in FY25E, Asia Securities doesn’t expect freight rates to reach pre-pandemic levels. The company’s rising fixed costs due to pandemic-era expansion and the recent appreciation of the Sri Lankan rupee against the US dollar are also seen as potential challenges.
Overall, Asia Securities considers the exit offer favorable for EXPO’s minority shareholders, given the normalized freight market conditions and EXPO’s financial situation.