ECA Integrated Solution (ECA) announced that it plans to raise RM66.82m via the proposed special issuance of up to 83m new shares or 14.37% of existing share capital to comply with the Bumiputera Equity Condition. Based on the enlarged share capital of 660.5m shares, the impact to our FY24-25F EPS is relatively muted. We believe the fund-raising exercise is timely as it helps expand its technical capabilities in the new venture. Maintain Outperform call with an unchanged TP of RM1.12 based on 35x FY24 EPS.

• Rationale of the proposed special issue. The Group is required to allocate at least 12.5% of its enlarged number of issued shares to Bumiputera investors to be approved by the MITI within 1 year after achieving the profit requirements for companies seeking listing on the Main Market or 5 years after being listed on the ACE Market of Bursa Securities, whichever is earlier. The Group met the profit requirements for listing on the Main Market based on FY22 financial performance and hence has until 31st Oct 2023 to comply with the Bumiputera Equity Condition. The proposal requires the approvals from the regulators and shareholders and it is expected to be completed by 3Q 2023.

• Salient details of the special issue share exercise. The proposed special issue will entail the issuance of up to a maximum of 83m special issue shares, representing 14.37% of the existing share capital of the company. Based on the illustrative issue price of RM0.805/ special issue share, the proposed special issue is expected to raise gross proceeds of up to RM66.82m. About RM50.34m or 75% of the total proceeds has been earmarked to finance the working capital requirements which include purchase of input materials (RM40.7m) and administrative expenses and other operating expenses (RM9.6m) over the next 2 years. It is worth noting that direct input material cost accounted for 66.51% of its cost of sales for FY22. Out of the RM40.7m, RM26.4m will be spent on the hardware, parts and components such as robotic arms, plates, brackets, fittings, valves, motor, generator, dispenser, aluminium, cable, wire and parts made up 65% while the remaining RM14.2m will be allocated for IT software, hardware and electronics such as software and programmable logic controllers including computers and peripheral devices, human machine interfaces, electronic control cards, camera and sensors.

• Beefing up coffer for new venture. We believe the fund-raising exercise is timely for the Group, which has set its sights on the aerospace and automated storage and retrieval system warehouse industries, which could start contributing to the Group in the 2H 2024. The Group is in the midst of acquiring new machineries to enhance their technical capabilities in formulating automated manufacturing solutions. Based on the enlarged share capital of 660.5m shares, the impact to our FY24F EPS is relatively muted after taking into the consideration of interest income, which could potentially increase by RM2.6m.

Source: PublicInvest Research - 2 May 2023