QL  yesterday  proposed  a  3-for-10  bonus  issue  and  a  2-for-10 renounceable  rights  issue.  We  are  positive  on  the  proposals  as  the bonus  issue  will  boost  trading  liquidity  while  the  rights  issue  will reduce the group’s net gearing. We are not surprised by  the proposals given  that  QL’s  net  gearing  has  been  high  and  a  fundraising  is inevitable in the near term. Maintain BUY and MYR4.20 FV. 
 
- 3-for-10 bonus issue. QL has proposed a 3-for-10 bonus issue of up to 249.6m  bonus  shares,  which  will  enlarge  its  current  share  base  to 1,081.6m from 832m. The bonus issue will be wholly-capitalised from the group’s share premium  account.  We  are  positive  on  the  deal  as  it  will help to improve the stock’s trading liquidity in the long run.

- 2-for-10  renounceable  rights  issue.  The  proposed  rights  issue  is expected to raise gross proceeds of MYR299.5m, based on an indicative issue  price  of  MYR1.80  per  rights  share.  This  represents  a  33.3% discount to the theoretical ex-all price of MYR2.70, based on the stock’s last closing price of MYR3.69. Of the total raised, MYR220m will be used to repay bank borrowings, MYR70m for capital expenditure and MYR8m for working capital. The remaining MYR1.2m is the estimated expenses for  the  deal.  Upon  completion  of  this  exercise, QL’s net gearing will improve to 0.3x from 0.8x.  

- Subscribe for the rights. We are not surprised by the proposals given that the group’s net gearing has been high and a fundraising is inevitable in  the  near  term.  Post-deal,  our  ex-all  FV  will  be  adjusted  to  MYR2.83, after  factoring  in  a  lower  interest  expense,  which  will  lift  our  FY14F earnings forecast by 4%.  

- Maintain  BUY.  We  remain  optimistic on QL’s outlook given its  good track record, resilient business model and continued regional expansion. Maintain  BUY,  with  our  FV  unchanged  at  MYR4.20  (ex-all  FV: MYR2.83),  based  on  19x  CY14  EPS.  The  stock  is  a  good  proxy  to  the emerging markets as the group has exposure to Indonesia and Vietnam, where growth potential is promising.

Source: RHB