Journey to Wealth
Johore Tin - Rights Shares Fixed at RM1.28
THE BUZZ
Johore Tin (Johortin) informed Bursa Malaysia yesterday that it has fixed the issue price of its rights shares at RM1.28 each, representing a discount of about 31.6% to the theoretical ex-rights price of RM1.87 per Johortin share. The board also fixed the exercise price of RM2.28 each for the warrants, which have tenure of five years.
OUR TAKE
Exercise to wrap up by 27 Nov. The exercise is expected to raise some RM29.9m to fund the group's expansion. The issue price of RM1.28 per rights share is at a 31.6% discount to the theoretical ex-rights price per Johortin share of RM1.87. This was based on the share's five-day volume weighted average market price (WAMP) of RM2.07 up to and including 9 Oct 2012. Meanwhile, the exercise price of the warrant represents a premium of approximately 21.9% to the theoretical ex-rights price of RM1.87 per Johortin share based on the five-day volume weighted average market price (WAMP) of RM2.07 per share up to and including 9 Oct 2012. The warrants, if fully converted into Johortin shares, will potentially raise proceeds amounting to RM53.2m, although warrant holders are unlikely to convert to the mother share in the near term.
New funds to boost long-term earnings. The group will be allocating RM15m to expand its warehouse and factory and spending RM5m to purchase new machinery and equipment. Apart from these, it will also set aside RM5.2m and RM0.5m for working capital and expenses relating to the rights issue exercise respectively. Under the maximum scenario whereby all the warrants are exercised, the group intends to use the proceeds as working capital and pay its overhead expenses or bank borrowings, which will ultimately lower its overall interest cost.
Balance sheet still healthy. Johortin will be forking out RM20m in capital expenditure over the next two years as well as pay RM5m to Able Dairies' previous owner. When the group purchased Able Dairies in November 2011, the latter came with a profit guarantee
(PAT) of RM7m for FY11 and RM10m for FY12. To protect Johortin's interest, its management had withheld a sum of RM8.5m - representing half of the profit guarantee for both years - to ensure that Able Dairies fulfils its profit guarantee. As we expect Able Dairies to achieve a PAT of RM10m this year, Johortin will most likely pay the RM5m as agreed upon by both parties during the sale transaction. We expect the group to be in a net cash position by the end of this year.
Maintain BUY. All in, we are reiterating our BUY recommendation on Johortin. We maintain our RM2.38 FV - based on sum-of-parts valuation ' since we have already diluted its earnings based on the enlarged share base, assuming full subscription of the rights shares. However, we have yet to dilute the group's earnings per share based on the full exercise of its warrants.
Source: OSK
Johore Tin (Johortin) informed Bursa Malaysia yesterday that it has fixed the issue price of its rights shares at RM1.28 each, representing a discount of about 31.6% to the theoretical ex-rights price of RM1.87 per Johortin share. The board also fixed the exercise price of RM2.28 each for the warrants, which have tenure of five years.
OUR TAKE
Exercise to wrap up by 27 Nov. The exercise is expected to raise some RM29.9m to fund the group's expansion. The issue price of RM1.28 per rights share is at a 31.6% discount to the theoretical ex-rights price per Johortin share of RM1.87. This was based on the share's five-day volume weighted average market price (WAMP) of RM2.07 up to and including 9 Oct 2012. Meanwhile, the exercise price of the warrant represents a premium of approximately 21.9% to the theoretical ex-rights price of RM1.87 per Johortin share based on the five-day volume weighted average market price (WAMP) of RM2.07 per share up to and including 9 Oct 2012. The warrants, if fully converted into Johortin shares, will potentially raise proceeds amounting to RM53.2m, although warrant holders are unlikely to convert to the mother share in the near term.
New funds to boost long-term earnings. The group will be allocating RM15m to expand its warehouse and factory and spending RM5m to purchase new machinery and equipment. Apart from these, it will also set aside RM5.2m and RM0.5m for working capital and expenses relating to the rights issue exercise respectively. Under the maximum scenario whereby all the warrants are exercised, the group intends to use the proceeds as working capital and pay its overhead expenses or bank borrowings, which will ultimately lower its overall interest cost.
Balance sheet still healthy. Johortin will be forking out RM20m in capital expenditure over the next two years as well as pay RM5m to Able Dairies' previous owner. When the group purchased Able Dairies in November 2011, the latter came with a profit guarantee
(PAT) of RM7m for FY11 and RM10m for FY12. To protect Johortin's interest, its management had withheld a sum of RM8.5m - representing half of the profit guarantee for both years - to ensure that Able Dairies fulfils its profit guarantee. As we expect Able Dairies to achieve a PAT of RM10m this year, Johortin will most likely pay the RM5m as agreed upon by both parties during the sale transaction. We expect the group to be in a net cash position by the end of this year.
Maintain BUY. All in, we are reiterating our BUY recommendation on Johortin. We maintain our RM2.38 FV - based on sum-of-parts valuation ' since we have already diluted its earnings based on the enlarged share base, assuming full subscription of the rights shares. However, we have yet to dilute the group's earnings per share based on the full exercise of its warrants.
Source: OSK
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