Homeritz proposed a bonus issue of up to 100m new shares on the basis of one bonus share for every 2 existing shares held.
The group also proposed bonus issue of up to 50m free warrants on the basis of one warrant for every 4 existing shares held. The bonus shares will not be entitled for the free warrants.
The proposals announced are expected to be completed by 3QFY15.
Highlights
We are neutral to slightly positive on the proposed announcement as it would result in a larger share base capital, enhancing the liquidity and marketability of the shares.
The proposed bonus issue of warrants would have a 5- year maturity period of which may be exercised at any time, commending on and including the date of issuance.
As for the impact towards share base, the minimum case scenario would enlarge Homeritz’s share base by 50% to 300m shares.
Assuming all dilutive securities are exercised (maximum case scenario), the group’s share base would increase to 350m shares.
Forecasts
Maintained as the proposed corporate exercises does not result any significant changes to our forecasts.
Rating
BUY
Posi tives: 1) the group could benefit from strong USD; (2) its revenue and PATAMI are expected to grow at CAGR of 8% and 14% respectively from FY14 to FYE16; (3) it has net cash per share of 23 sen; and (4) Still attractive FY15E DY of 4.3%, based on 40% payout ratio.
Negatives
USD weakness; high raw material prices; high labour costs; unexpected economic downturn; and production or operational risks.
Valuation
We maintain our TP at RM1.54 (based on 10x P/E which is premium to the furniture industry average P/E of 8x as we forecast the Group’s CAGR growth at 14%).
Post-bonus issue, our TP would be adjusted from RM1.54 to RM1.02 (vs. ex-price at RM0.77).
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