Coastal Contracts (Coco)  has proposed a 10% private placement based on  issued  and  paid-up  number  of  shares  of  483.1m.  Based  on  our calculation,  assuming  maximum  issuance,  the  dilution  impact  to  our FY14/15  EPS  will  be  20%/19%  respectively.  In  addition  to  financing working capital requirements, the placement will  enhance  the liquidity and marketability of its shares  Maintain BUY and MYR5.44 FV.

• Proposed  private  placement.  Management  has  proposed  a  10% private  placement  based  on  issued  and  paid-up  number  of  shares  of 483.1m. According to the announcement, assuming that: i) all its existing 60.4m  warrants  are  exercised  into  new  shares,  and  ii)  all  200,000 treasury  shares  are  resold,  the  proposed private placement  may  entail the issuance of up to 54.4m of new shares. Based on the indicative issue price of MYR3.81, the placement may  raise  approximately MYR207.4m. Proceeds  from the placement  will  finance  its  working capital  needs  for the next year.
• Impact of dilution.  According to  our calculation, the dilution impact to our  FY14  and  FY15  EPS  could  be  up  to  20%  and  19%  respectively. Based  on  the  minimum  scenario,  both  FY14  and  FY15  EPS  will  be diluted by 9%.
• Maintain BUY, MYR5.44 FV. We maintain our BUY recommendation on the stock,  with our MYR5.44 FV based on a  target FY14 P/E of 13x, on par  with other  small-  to mid-cap oil  & gas (O&G) companies within our coverage.  Management believes that the exercise will help to enhance the  liquidity  and  marketability  of its  shares ,  as  its  average  daily  traded volume  has  been  relatively  small  compared  to  other  mid-  to  big-cap stocks, whose average daily volume is more than 10 times of Coco’s.  

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Source: RHB