KUALA LUMPUR: Malaysia Resource Corp Bhd's 1-for-1 rights issue price of 79 sen is lower than expected, according to Hong Leong Investment Research.
"The rights price represents a discount of 33.6% to its last traded share price of RM1.19 (20% discount to its last theoretical ex-rights price). The rights will commence trading on 5 Oct.
"Based on this fixed rights price, MRCB will raise RM1.7bil under the minimum case scenario. We will apply the minimum case scenario for our analysis as the existing warrants are out of the money," it said.
The research firm notes that MRCB as announced that the bulk of the proceeds will be used for the National Sports Complex privatisation and repayment of debts.
"Assuming the sum allocated for the NSC remains unchanged at RM975m, as earlier indicated, this would leave a balance RM742m for debt repayment (ignoring other incidental expenses)."
HLIB Research said the rights issue is expected to reduce gearing while interest savings is expected to amount to RM47mil on a full-year basis from this.
It notes that risks could include inconsistency in quarterly core earnings delivery and significants EPS dilution from the rights issue.
HLIB Research maintains its forecasts pending the exact enlarged share based resulting from the rigths issue. EPS is expected to be diluted by 50% from the rights issue.
The research firm maintains its Hold call on MRCH with a target price of RM1 (ex rights).
"Whilst there is certainly no lacking of catalytic projects that MRCB has in hand, the issue here as always, is about core earnings delivery and a long term sustainable management
of its net gearing.
"While there are no changes to our earnings forecast, we lower our ex rights TP (SOP derived) from RM1.09 to RM1 after adjusting our assumed rights price from RM1 to RM0.79.
"Our TP implies an expensive FY17-18 P/E of 75x and 54x respectively."
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