Press Metal Berhad (PMETAL) has proposed to undertake: (i) 1:2 share split, (ii) bonus issue of 2 for 5 subdivided shares, and (iii) an internal reorganization into an investment holding company. We are positive on the proposal as it improves share liquidity while the reorganization will further streamline operating segments and taxation structure. Maintain earnings and OUTPERFORM call, while we upgrade our TP to RM4.21 (from RM3.65) on expected post-expansion re-rating.

Split and bonus. PMETAL has announced the following proposals:

(i) Share split involving the subdivision of every 1 ordinary share of RM0.50 each into 2 ordinary shares of RM0.25 each (subdivided shares).

(ii) Bonus issue of up to 1.15m new bonus shares on the basis of 2 bonus shares for every 5 subdivided shares.

(iii) Proposed increase in authorised share capital from RM1.0b comprising 2.0b PMETAL shares to RM2.0b comprising 8.0b subdivided shares.

(iv) Amendments to Memorandum and Articles of Association to facilitate the proposals.

(v) Proposed internal reorganization via share exchange of all subdivided shares and warrants into a new investment holding company (Newco) on the basis of 1 Newco share for every 1 subdivided share and 1 Newco warrant for every 1 existing PMETAL warrant and proposed transfer of listing to Newco shares and warrants.

Adding liquidity. We are positive on the proposed share split and bonus as we concur with management that the move should improve the liquidity of PMETAL shares and reward existing shareholders whilst maintaining their equity interest. We are also optimistic on the proposed reorganization into an investment holding company as this should provide more flexibility in its operating segments, reduce legal/creditor risk, and streamline its tax structure.

Maintain FY16-17E CNP at RM343-457m as the proposals have no earnings impact.

Maintain OUTPERFORM with higher TP of RM4.21 (ex-split/bonus TP: RM1.50). We reiterate our OUTPERFORM call as we believe PMETAL shares are likely to continue re-rating in view of its latest capacity expansion (Samalaju Phase 3) which raises FY17E total smelting capacity by 27% to 760k MT/year. As a result, we raise our TP to RM4.21 (exsplit/ bonus TP: RM1.50) from RM3.65, based on a higher Fwd. PER of 12.7x (from 11.0x) applied to unchanged FY17E FD EPS of 33.2 sen (exsplit/ bonus: 11.8 sen). Our Fwd. PER of 12.7x is derived from FY17E capacity growth of 27% added to PMETAL’s historical implied PER of 10.0x, after excluding previous years’ capacity growth. The Fwd. PER of 12.7x implies a lower discount of 13% against the FBM70’s Fwd. PER of 14.6x (previous discount: 21%), which we think is fair due to PMETAL’s rerating potential.

Source: Kenanga Research - 12 Jul 2016