• MBSB-OR will cease trading on 4 July. To recap, MBSB had fixed its 1:1 Rights Issue price at RM1.00. The Rights is a renounceable two-call rights issue of which the 1st call of RM0.59 for each rights share will be payable in cash and the 2nd call of RM0.41 for each Rights Share will be capitalis ed from MBSB’s share premium account. The rights went ex on 21 June (payment date: 13 July), raising MBSB’s enlarged shares to 5.799bn s hares (+104%) from 2.84bn previously.

• Further downfall cushioned by cheap P/B and steeply oversold positions. Following the release of a dismal 1Q16 results (12 May) and earnings dilution from the two-call rights coupled with the unexpected “Brexit” vote, MBSB s hare prices nosedived 29% from RM0.99 (12 May) to a low of RM0.70 before ending at RM0.715 yesterday.

• At RM0.715, MBSB is trading at 0.64x P/B, which is 68% below its nearest peer, RCECAP’s P/B of 2x and 34% discount against its historical 10-year trough of 0.98x. We believe such huge discounts have priced in most of the negatives and provided sufficient margin of safety to cushion further sharp share price decline.

• Ripe for a relief rally. Normally, selldown on high volume is negative but in this case, since it happened near bottom, could be selling climax with yesterday robust 15.26m shares transacted (95% higher against 1W average and 445% higher than 1M average).

• Hence, we believe severe downside risks are ebbing, implying imminent rebound in near term amid expectations of further share price recovery to encourage more rights ’ participation. A decisive breakout above immediate resistance of RM0.755 (23.6% FR) could take the next leg up towards RM0.79 (38.2% FR) before retesting our LT objective at RM0.85 (61.8% FR and 20-d SMA). On the flip side, key supports are RM0.70 psychological level and RM0.685 (25 Sep 11 low). Cut loss at RM0.66.

Source: Hong Leong Investment Bank Research - 29 Jun 2016