Yong Tai announced the proposed issuance of new Redeemable Convertible Preference Shares (RCPS) amounting to RM180m (on a maximum scenario) which will see the Group get a much-needed infusion of funds to proceed with its various business ventures as it works on strengthening its prospects severely hamstrung by the COVID-19 pandemic. While this exercise will be severely dilutive upon full conversion as earnings generation from its projects are not likely to be significant enough to mitigate the apparent negative effects, rehabilitation of the Group’s financial standing takes precedence for now. We are neutral on this development, and keep earnings estimates and valuation unchanged at this juncture. Upside may come from more significant headway made in its vaccine-related venture and its recent foray into gold mining, both of which we have not accounted for in our estimates. Re-opening of the Encore Melaka theatre will provide a further boost to sentiment. While there appears to be a relatively attractive share price upside to our sum-of parts derived target price of RM0.24 (adjusted from 31sen to account for issuance of new shares pursuant to its recent placement exercise), we retain our Neutral call for now given the lack of near-term re-rating catalysts.
- The RCPS will have a 5-year tenure, carry a dividend rate of 2% per annum and will be subscribed in full by Areca Capital Sdn Bhd through its Areca Strategic Income Fund 7.0, and will be issued in 9 tranches (broken further into sub-tranches). On maturity date, any remaining RCPS not converted will be redeemed at 115% of the subscription price (ie. RM1.15). Though the conversion price has yet to be determined, it has however been agreed that any decisions will consider 1) the respective commercial and financial requirements of the Group as well as the Subscriber, 2) the dilution impact of the conversion of the RCPS, and that 3) the minimum conversion price has been set at 10sen and 4) there will be a 15% discount applied to the relevant closing prices of YTB shares in determining the conversion price Based on illustrations, a maximum of 648.1m conversion shares may be issued based on the existing number of 1.35bn issued shares. The RCPS will not be listed on Bursa Securities.
- Utilization of proceeds. Based on a minimum (and maximum) scenario(s), RM64.8m (RM179.9m) will be raised with RM22m (RM60m) to part-finance developments within Impression City, RM16m (RM45m) to part-finance the development of Courtyard by Marriott Hotel, RM11m (RM30m) for its mining-related venture, RM9m (RM25m) to part-finance its vaccine-related venture, RM2.9m (RM10.3m) for working capital and RM3.9m (RM9.7m) for exercise-related expenses.
- Effects of the exercise. The total share base will balloon to 2.06bn (on a maximum basis) from the current 1.35bn shares, with current net asset per share and net gearing falling to 35sen (43sen before) and 0.27x (0.34x previously). Our sum-of-parts derived target price will fall from 24sen to 16sen.
Source: PublicInvest Research - 29 Oct 2021