Thong Guan Industries’ share  price went  ex-ICULS and  warrants on  12 Sept,  with its ex-all price  adjusted  by Bursa Malaysia. Accordingly, we adjust our FV to MYR2.60  (from MYR3.60), which  now represents a  13% upside. We derive our FV by pegging its fully -diluted FY15 EPS from the conversion  of  ICULS  and  warrants  to  an  11x  P/E,  broadly  in  line  with average peer target valuations of 12x. Maintain BUY.

Rights  issue  of  ICULS  with  free  warrants.  Recall  that  in  February, Thong  Guan  proposed  a  renounceable  rights  issue  of  up  to  52.6m irredeemable convertible unsecured loan stocks (ICULS) on the basis of one  ICULS for every  two  shares.  The  issuance  also comes  with  up  to 26.3m  free  new  warrants  on  a  one  free  warrant  for  every  two  ICULS subscribed basis.  

Share price adjustment  of 0.735x by Bursa Malaysia.  On the ex-date of  the  proposed  exercise  on  12  Sept,  we  noted  that  Bursa  Malaysia adjusted the share price by 0.735x,  taking into account the  dilution from both  the  outstanding  ICULS  and  warrants  as  they  were  deep  in-themoney the day before the ex-date. 

No  change  to  our  earnings  forecasts.  We  make  no  changes  to  our earnings forecasts as the price adjustment does not have any accretive or dilutive effect on earnings. However, we adjust our FV pursuant to the price adjustment by taking into account the enlarged share base of 184m from  the  full  conversion of ICULS and warrants from the existing share base of 105m. 

Maintain  BUY  with  adjusted  FV  of  MYR2.60.  As  Bursa  Malaysia adjusted  the  share  price  ex-ICULS  and  warrants  on  Friday,  we  also adjust  our FV  accordingly  to  MYR2.60  (from MYR3.60),  which  offers  a 13%  upside.  We  derive  our  adjusted  FV  from  pegging  its  fully-diluted FY15 EPS from  the  conversion of ICULS and warrants to an 11x P/E, broadly in line with average peer target valuations of 12x.

Source: RHB