QL Resources; Buy; RM3.69
Price Target: RM4.05; QLG MK

QL proposed a 3-for-10 bonus issue and 2-for-10 rights issue (indicative price of RM1.80/rights share) to be completed by 1Q14. Based on its current 832.0m outstanding shares, this entails issuance of 249.6m bonus shares and 166.4m right shares (maximum subscription). The Group intends to utilise the majority of its proceeds to repay bank borrowings (RM220m) and capital expenditure allocation (RM70m).

We derive a theoretical ex-all price of RM2.70/share (inclusive of Bonus and Rights issues) based on its last closing price. We think shareholders should subscribe to the rights issue as it enables a cheaper entry into the stock which offers long-term growth prospects particularly from its marine products manufacturing (MPM) and palm oil activities (POA) segments.

Based on our FY15 net profit forecast of RM216.4m, we estimate a post-Rights issue EPS of 22.7 sen (vs pre-Rights issue at 26 sen) with 23% savings on its interest expenses. This does not include potential growth from the capex raised. QL’s balance sheet will improve as its gearing level falls to 0.48x (vs 0.77x; end-4QFY13) on a proforma basis.

Maintain BUY with a DCF-based RM4.05 TP.

Source: HwangDBS Research - 4 Oct 2013