- Like its parent company, Genting Bhd, Genting Plantations (GenP) has proposed a special interim cash dividend and a restricted issue of warrants. This is similar to a dividend reinvestment scheme.

- In GenP’s case, the special interim cash dividend would amount to 44 sen/share less 25% income tax. The warrants would be issued on the basis of 1-for-5 at an offer price of RM1.65/warrant.

- Essentially, a shareholder of GenP does not need to fork out money to subscribe for the warrants. The special cash dividend of 33 sen/share (after tax) would cover the cost of subscribing to the warrants.

- GenP is not expected to face problems paying the dividends, which would amount to RM250.4mil in total.

- The exercise price of the warrants is RM7.75/share, which is the difference between the warrant issue price of RM1.65 and GenP’s closing price of RM9.40/share as at 26 August 2013.

- GenP’s share base would increase by 20% to 910.6mil. Assuming all of the warrants were to be converted, we estimate that GenP’s FY14F EPS would decline by 8% to 10% due to the expansion of the share base.

- However as the exercise period of the warrants is 5 ½ years, the impact of the dilution may not be immediate.

- It appears that GenP is on a fund-raising spree. In July 2013, the group proposed an RM1.5bil Sukuk issue. The proposed warrant issue would raise cash flows of an additional RM1.2bil.

- GenP was in a net cash position of RM134.4mil as at end-June 2013.

- We believe that GenP would use the proceeds from its corporate exercises to expand in the plantation and property businesses. The group plans to plant 6,000ha of land in Indonesia this year. In Johor, GenP’s property activities are also flourishing underpinned by residential and industrial land sales. Maintain BUY on GenP.

Source: AmeSecurities