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Author: PublicInvest   |   Latest post: Tue, 18 Jun 2019, 10:48 AM

 

Yong Tai Berhad - Special Share Issue

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To our slight surprise, the Group has announced a special share issue which will see a mammoth 300m placed out immediately (necessary approvals obtained, notwithstanding) to 3 parties, and the remaining 100m shares to be placed out to interested parties at a later date. The surprise is the sheer size of the exercise which almost doubles its existing share base (before conversion of the preference shares), and also coming so soon after it had just completed another share placement exercise recently. We are slightly troubled over this development, as the equity raising route at relatively low share prices vis-à-vis just over a year ago when prospects looked promising suggests of difficulties in obtaining debt financing at rates commensurate with its prospects. While we continue to see value in its long-term proposition, near term confidence in the Group will depend largely on the speed in which it manages to turn around its Encore Melaka theatre which is being dragged by lower-than-expected ticket sales. Our sum-of-parts (SOP) derived target price is lowered to RM0.41 (RM0.55 previously) as we account for the recent share placement exercise while also increasing the SOP discount to 60% (50% previously) as we flag concerns over its fund raising exercises. Post-completion of this particular exercise anticipated by the second half of the year, target price will adjusted to RM0.27. Our Neutral call is retained, with clarity on near-term earnings prospects remaining cloudy.

  • Special issue of 300m shares will be taken up by 3 parties in equal proportions:
  • Full Intelligent International Limited, a company linked to its existing Hong Kong-based major shareholder Full Winnings Development Limited, will subscribe for 100m shares at 36sen per share.
  • A further 100m shares will be taken up by Domain Capital Sdn Bhd (DCSB), 70%-owned by Hongda Capital Limited and 30%-owned by Yong Tai Berhad’s current Chief Executive Officer, Datuk Wira Boo Kuang Loon. Hongda Capital, meanwhile, is 70%-owned by Thong Teong Bun who is Independent Non-Executive Director of Bursa listed Amtek. The remaining 30% in DCSB is owned by Ho Sue Bia who counts as a significant shareholder in Bursa-listed Latitude Tree Holdings (as as 4 October 2018 – in the 2018 Annual Report).
  • The final tranche of 100m shares will be subscribed by Datin Seri Faridatulfirdaus binti Ariff, currently Setiausaha Sulit Kanan in Bank Kerjasama Rakyat Malaysia Berhad.
  • Remaining issue of 100m shares will be placed out to third party investor(s) to be identified, at an issue price to be determined and fixed by the Board at a later date after receipt of all relevant approvals for the Proposed Special Issue.
  • Share base of the company will eventually balloon to 1.18bn shares, post conversion of 32.6m outstanding warrants (at 50sen per share) and 216m Irredeemable Convertible Preference Shares (ICPS) on a 1-for-1 basis. While management opines that the Proposed Special Issue will contribute positively to the future of the Group due to the availability of additional funds toward its ongoing development projects, we are nonetheless troubled at the highly-dilutive nature of this exercise in the near term as earnings from its on-going projects will only kick-in more significantly late FY20 / early FY21 at the earliest. The equity raising route at relatively low share prices vis-à-vis just over a year ago when prospects looked promising suggests of difficulties in obtaining debt financing at rates commensurate with its prospects, somewhat troubling to us.

Source: PublicInvest Research - 21 May 2019

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