Inari Amertron has finalised rights issue  pricing  at MYR1.50 per rights share.  The  free  warrants  attached  to  the  rights  share  are  priced  atMYR2.00 exercise price. We believe the proceeds raised from the rights issue  could  help  to  expand  its  core  businesses  to  propel  earnings growth in the medium term. Hence, we maintain BUY and keep our TP at MYR3.82 (or MYR3.10 fully diluted ex-rights), implying a 41.5% upside.

Salient  details.  The  rights  price  of  MYR1.50  represents  a  discount  of 41.6%  to  its  theoretical  ex-rights  price  of  MYR2.57,  based  on  its  last closing. At its existing share base of 602.1m shares, we estimate that the rights issuance could raise  gross proceeds of over  MYR110m, of which some MYR60m will be used to set up new plant as well as procuring new equipment.  This  would  cater  for  future  growth  opportunities  within  its radio  frequency  integrated  circuits  segment,  as  we  have  highlighted previously that existing capacity is almost fully occupied at an average utilisation rate of over 85%.

In-the-money warrants.  The exercise price of the warrants at MYR2.00 implies  a  discount  of  22.1%  over  Inari  Amertron’s  theoretical  ex-rights price of MYR2.57. This would entice investors to subscribe for the rights as  the  warrants  will  be  issued  deep  in  the  money.  Based  on  our calculations, Inari’s share price ex-rights and ex-warrants (given that it is deep in the money) would be adjusted to MYR2.51  (from  its last closing of MYR2.70).

Maintain BUY.  The pricing of both its rights issue as well as warrants were  in  line  with  management’s  previous  guidance.  We  continue  to advise investors to subscribe for the cash call as we believe the exercise could help to fund its expansion plans and hence propel earnings growthover the  medium  term.  All  in, we are  maintaining our  BUY  call with ourTP  unchanged at MYR3.82  (17.5x CY15F P/E,  a  41.5% upside).  Upon completion of the  rights issue and assuming full conversion of the new warrants,  Inari’s  fully-enlarged  share  base  would  increase  to  797.7m,while we would tweak our TP accordingly to MYR3.10.

Source: RHB