Investment Highlights

• Bison has proposed a slew of corporate exercises which would effectively raise capital to fund the purchase of an enlarged corporate office and warehousing. We opine that funding could have been optimised with debt instead.

• Downgrade our recommendation to HOLD from BUY. We take into account of the 10% dilutive impact arising from the private placement, arriving at our FV of RM2.79/share (Exhibit 3). It is pegged to 27x CY18F EPS, historical valuations of its peer 7-Eleven Malaysia. While we like Bison for its full autonomy over its brand name potentially leading to more franchise opportunities and store expansion-led growth, valuations are fairly reflective of its prospects ahead.

• Bison has proposed 4 key corporate exercises including:
  1. Private placement of up to 31mil new ordinary share or 10% of its existing share base. Based on an indicative price of RM2.50, it would raise an estimated proceed of RM77.5mil.
  2. Acquisition of a parcel of leasehold industrial land with an approximate size of 192,340 sq ft in Sungai Buloh, Selangor. It is for the consideration of RM50mil or RM260/sq ft. We analyse a comparative property and pricing appears to be fair (Exhibit 2).
  3. Bonus issue of up to 341mil new shares on the basis of 1-for-1 existing Bison share. It is applicable to the private placed shares as well. It is a positive as it should improve on the trading liquidity of Bison’s shares. The average daily value traded is RM0.3mil.
  4. Establishment of Employees’ Share Option Scheme (ESOS) amounting to 10% of the total number of issued shares.
      
• RM50mil arising from the private placement is intended for proposal (ii) or the acquisition of the land parcel. The remainder will mostly be utilised for working capital, specifically for the development of its fresh food production facility. Refer to Exhibit 1 for utilisation breakdown.

• The proposed purchase will be fully financed by the proceeds raised from the proposed private placement. Indicative gearing post acquisition is projected to downtrend to 0.04x from its current gearing of 0.05x.

• We are delighted with Bison’s aggressive expansion driving the need for a larger corporate office and more warehousing. That said, return on equity could have been maximised with debt funding or pursuing to rent instead. The consequent impact of the corporate exercises is highly dilutive as well (close to 20%). Moreover, the corporate exercise does not impact earnings in the near term nor does it offer significant strategic benefits.

Source: AmInvest Research - 5 Sept 2017