- We are maintaining our BUY rating on Malaysia Building Society Bhd (MBSB), with a lower fair value of RM3.40/share (from RM3.60/share previously) (cum basis) or RM2.99/share (vs. RM2.18 previously) on an exrights price basis.

- Our earnings forecasts and fair value already reflect the latest information on the proposed rights issue, and is fully diluted for the previous warrants issue in FY11. This is based on a fully-diluted ROE (for previous warrants and potential imminent rights issue) of 19.0% (from 19.7%), leading to fair P/BV of 1.86x (from 1.94x).

- MBSB has now announced a renounceable rights issue of new MBSB shares (rights shares) to the entitled shareholders of MBSB to raise maximum gross proceeds of up to RM1.47 billion. This is less than our earlier forecast of RM2.8bil.

- While the rights issue basis and rights issue price are not fixed yet, for illustration purposes, the company has provided an indicative pricing.

- For illustrative purposes, the company indicated that rights issue price is RM2.04, representing a 21.2% discount to the TERP of RM2.59 based on the five (5)-day VWAP of MBSB shares. Entitlement basis is two (2) rights shares for every five (5) MBSB shares held.

- The rights issue is less dilutive as we were assuming a right issue entitlement basis of 5 rights for every 7 shares, with a rights issue price of RM1.15.

- The company has also announced it will be implementing a dividend reinvestment plan that gives shareholders of MBSB the option to elect to reinvest their dividend entitlements (representing cash dividends declared by MBSB including interim, final, special or any other cash dividends) in new MBSB shares.

- The targeted timeline for completion of the proposals is 1QFY14.

- The proposals are subject to the following approvals being obtained:-(a) Bursa Securities for the listing of and quotation for the rights shares to be issued pursuant to the proposed rights issue; (b) MBSB’s shareholders at an EGM to be convened in relation to the proposals; and (c) approvals, waivers and/or consents of any other relevant authorities/parties, if required.

Source: AmeSecurities