Journey to Wealth
KNM Group - Rights Issue 1.31x Oversubscribed
THE BUZZ
KNM announced on Bursa Malaysia on Monday that its rights issue shares and warrants were both oversubscribed by 31.45%.
OUR TAKE
RM195.5m raised but no changes to our FY13 forecasts. While the oversubscription is a positive signal from shareholders, we believe that there are no earnings upside to our FY13 forecasts as the bulk of the proceeds (>75%) would be used for repayment of bank borrowings. We are making no changes to our FY13 forecasts as we have previously assumed a lower interest expense in FY13 due to lower borrowings moving forward.
Gearing ratio to reduce to 35-40% by FYE12. As at 30 Jun 2012, the group's net gearing ratio stood at 52.4%. With the completion of the exercise, we expect that the group's net gearing ratio to trend downwards to 35-40% by FYE12.
Downgrade to NEUTRAL. Despite the positive results from its rights issue exercise, we are downgrading the stock from a TRADING BUY to NEUTRAL as we do not expect any earnings upside to our forecasts from the proceeds of the rights issue. Our FV is revised downwards to RM0.55 from RM0.81, pegged to the group's diluted 11x FY13 EPS due to the enlarged share base.
Source: OSK
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