News

• Rights issue, bonus issue and warrants. Mitrajaya has proposed to undertake (i) rights issue on a 1 for 5 basis, (ii) attached bonus issue of 1 bonus share for every 2 rights and (iii) 1 free warrant for every 2 rights.

Comments

• Impact to share base. The abovementioned corporate exercise would increase Mitrajaya’s share base from 689.5m to 895.6m in the minimum case and 1023.6m in the maximum case.
• Amount raised. The indicative rights price has been set at RM0.68, representing a 34% discount to its previous close of RM1.03. The rights issue would raise total proceeds of RM93.7m under the minimum case scenario and RM107.1m in the maximum case. Upon exercise, the free Warrants E would raise another RM79.2m under the minimum case and RM90.6m in the maximum case. For our analysis, we will use the minimum case scenario as the existing Warrants D are out of the money.
• Utilisation of proceeds. The funds raised will largely be used for repayment of borrowings (RM91.7m) and expense related to the corporate exercise (RM2m). This is estimated to result to interest savings of RM4.7m annually. We estimate that net gearing would reduce from 32% (2QFY17) to 16% on a proforma basis.

Risks

• EPS dilution resulting from the rights issue.

Forecasts

• Unchanged pending more specifics on the exact completion date. Tentatively, the rights issue is expected to be completed in 1Q18.
• As an indication, assuming a full year dilution impact, our FY18-19 EPS would be diluted by 16.6% (FY17 no dilution).

Rating

• Maintain HOLD, TP: RM0.96 (TERP)
• We see minimal upside catalysts in the near term due to (i) potential continued drag in earnings for 2H17 from its RAPID projects and (ii) EPS dilution from the rights issue in FY18.

Valuation

• After factoring in the EPS dilution from the rights issue, our theoretical ex rights TP is reduced from RM1.15 to RM0.96, which is based on unchanged 10x target P/E on FY18 earnings.

Source: Hong Leong Investment Bank Research - 16 Oct 2017