MBSB has fixed its 1:1 Rights Issue price at RM1.00. This will reduce our forecasted FY16/FY17 EPS to 2.6 sen/3.5 sen. We downgrade MBSB to UNDERPERFORM with a revised TP of RM1.11 after taking into account the impact of the Rights Issue.

Rights Issue fixed at RM1.00. MBSB announced yesterday the pricing of its Rights Issue at RM1.00 per share with an entitlement basis of 1 Rights Share for every 1 existing MBSB share. The Rights which is a Renounceable two-call Rights Issue of which the First Call of RM0.59 for each Rights Share will be payable in cash on application and the Second Call of RM0.41 for each Rights Share will be capitalised from MBSB’s share premium account. The First Call of RM0.59 represents a discount of 33% to the TERP of MBSB shares of RM0.88 based on the 5-day VWAP price of up to 8 June 2016 of RM1.17.

The number of Rights Share to be issued will be 2.89b, an enlargement of 102% to MBSB’s existing share capital of 2,848.3m raising approximately RM1.7b in proceeds. This will bring the total number of shares eventually to 5,747.7m shares.

MBSB also announced that it entered into a managing and underwriting agreement with its underwriters, AmInvestment Bank, RHB Investment Bank, Affin Hwang Investment Bank, Maybank Investment Bank and MIDF Amanah Investment Bank to underwrite the remaining portion of 1.05b Rights Shares representing 36.3% of the total issue size of the rights issued based on the first call of 59.0 sen that is not covered by EPF’s undertaking. EPF had agreed on March 10 to subscribe in full for its entitlement under the Rights Issue based on its shareholdings of 1.84b MBSB shares as at 4 March 2016.

The entitlement date of the renounceable two-call rights issue of 2.89b new ordinary shares of RM1.00 each is at 5pm 24 June 2016.

No impact on earnings but EPS and ROE revised. There is no material impact to our earnings forecast, but EPS for FY16/FY17 is diluted to 2.6 sen/3.5 sen from our initial forecast of 2.9 sen/3.8 sen. ROE is mildly enhanced to 2.65%/2.98% for FY16/FY17 (from 2.58%/2.85%) as our forecasted Shareholder’s equity is trimmed by 4.6%/4.4% for FY16/FY17 due to the recapitalisation on its share premium account.

Target Price reduced with an UNDERPERFORM call. We reduce our TP to 1.11 (from RM1.34) based on an unchanged blended FY17E 1.6x P/B and 8.9x FY17E PER (5-year average PB/PE). As there is 6% downside to our TP, we downgrade our call to UNDERPERFORM.

Source: Kenanga Research - 10 Jun 2016