HELP  announced  that  is  has  proposed  a  renounceable  rights  issue  in the  form  of  a  5-year  4%  ICULS  on  the  basis  of  one  ICULS  for  one existing  share.  We  expect  the  exercise  to  raise  MYR71m  to  partially fund its MYR150m capex needed for its new Subang 2 flagship campus. Maintain NEUTRAL, with our FV lowered to MYR1.69, based on a higher P/E  of  12x  (from  10x previously),  now  that  the  funding  for  its  new university campus has finally been sorted out.

-  Briefly  on  ICULS.  The  issue  price  for  the  irredeemable  convertible unsecured  loan  stock  (ICULS)  is  fixed  at  MYR0.50  with  an  annual coupon  rate  of  4.0%.  Upon  the  third  anniversary  from  the  date  of  the ICULS  issuance,  these  ICULS  can  be  converted  into  ordinary  shares with  the  conversion  ratio  at  3-to-1  based  on  the  conversion  price  of MYR1.50  per  share.  This  represents  a  16%  discount  to  the  theoretical ex-rights price of MYR1.78, based on its 5-day volume weighted average market price up till last Friday. 

- Funding  firmed  up.  This  exercise  is  expected  to  raise  MYR71m  to partially  fund  for  its  MYR150m  capex  needed  for  its  new  Subang  2 flagship campus. Based on the coupon rate of 4% p.a., we estimate that HELP  would  incur  additional  MYR2.8m  in  interest  expense  every  year. Factoring  this  into  our  model,  our  net  profit  forecasts  for  FY13F-FY15F would  have  been  lowered  by  3%  to  27%.  Treating  this  as  a  form  of borrowing, HELP would turn from its current net cash position to one of net debt with gross gearing ratios of 0.3x for FY14F and 0.6x for FY15F.

- Full  conversion  of  ICULS.  We  expect  these  ICULS  to  be  gradually converted  into  ordinary  shares  from  FY17F,  which  is  the  third anniversary  of  the  issuance.  Upon  the  full  conversion  of  these  ICULS, HELP’s share base is  expected  to  increase  from  142m  to  189m,  which could potentially dilute the company’s EPS by  around  30%.  Ceteris paribus, our new FV post-dilution will be revised lower to MYR1.38 from MYR1.88 previously. 

Source: RHB