News     ASIABRN has completed its private placement exercise and announced that it would be listing the 7.2m new shares today.

To recap, the shares were issued at RM3.30 each and represented 10% of its existing issued share capital of 71.9m shares.   

This brought its new share base to 79.1m.

Comments    The exercise raised cash proceeds of around RM23.7m, which ASIABRN intends to utilise to repay part of its bank borrowings.

Note that the recent injection of core brands Anakku and Audrey (completed in Dec 2012) involved RM172m in borrowings to fund the RM245m acquisition.  

Based on our forecasts, the proceeds from the private placement will result in a substantial 33%-24% reduction in FY14-FY15E net gearing to 0.32x-0.26x from 0.48x-0.34x earlier.

ASIABRN will also benefit from interest savings of  c. RM1.2m per annum, as well as being able to meet the minimum public shareholding spread requirement of 25% (currently, ASIABRN's public shareholding spread stands at 22.5%).

Outlook    Going forward, we expect the combined synergies of the enlarged group to be even more pronounced as its new baby apparel and lingerie business segments are expected to: 1) complement and enhance the product variety of the group, 2) increase its customer and supplier base and 3) eliminate duplicate resources.

Furthermore, the group's on-going plans to pare down its gearing seem to be on track and we expect continued efforts such as the implementation of the "Smart Vendor Partnership Program" (SVPP) and planned disposal of non-core assets to provide ASIABRN with yet another avenue to bring down its gearing ratio. 

Forecasts    Recent updates from management suggest that there is likely to be further gains on disposal in the current financial year. As such, we are raising our FY14 PBT estimates by c.RM2m. Coupled with the interest savings from the private placement, we have increased our FY14-FY15E net profit forecasts by 8.6% and 4.1% respectively. 

However, the EPS numbers for the two years will see a slight dilution of 1.3% and 5.0% respectively in line with the larger share base. 

Rating  Maintain OUTPERFORM. 

Valuation     The dilution impact above has resulted in our target price being reduced slightly to RM3.95 (from RM4.00 previously) based on an unchanged targeted PER valuation of 8.5x FY14 EPS.

Risks    A delay in implementing the SVPP.

A slowdown in the global economy could cut the purchasing power of consumers.

Source: Kenanga