WHAT’S NEW

Gabungan AQRS (GAQRS) has proposed to undertake a bonus issue of Warrants B on the basis of one Warrant B for every four existing shares held to reward existing shareholders and to raise additional working capital, when Warrant B is exercised in future. (Source: The Edge)

COMMENTS

• As at 21 Jun 18, the company has a total of 114.5m outstanding Warrants A. Each Warrant A carries the entitlement to subscribe on a 1-for-1 basis at an exercise price of RM1.30/warrant, up to to 5.00 p.m. on 20 Jul 18 (Expiry of Warrants A).
• The actual number of Warrants B to be issued depends on the total number of issued GAQRS shares as at the entitlement date. The exercise price and entitlement date will be announced at a later date. It intends to use the funds for working capital, which includes payment for trade and other payables, staff costs and other operating expenses. The proposed bonus issue of Warrants B is expected to be completed by 4Q18.

RECOMMENDATION

• Maintain BUY and unadjusted target price of RM1.86, based on 10x 2019F fully-diluted EPS of 18.6 sen. Key catalysts for the stock would be new large construction orders in 2H18. We like GAQRS for its: a) superior orderbook cover, b) strong position which will enable it to secure new jobs, and c) anticipated strong earnings growth.
• Upside to target price if Warrant A conversion is low. As our target price conservatively assumes the dilutive impact of a full conversion of Warrants A, there is upside to our target price assuming that most Warrant A holders would not convert (exercise price: RM1.30). As our sensitivity analysis shows, our target price could be raised to RM2.20 if only 20% of the Warrant A holders convert, based on 10x PE target. Warrant A holders will need to serve notice to the company to convert by 20 Jul 18.

Source: UOB Kay Hian Research - 26 Jun 2018