KUALA LUMPUR: PublicInvest research remains optimistic over London Biscuits Bhd following the announcement of another private placement exercise, given the strong growth anticipated in the potato chip segment coupled with the interest expense savings which it will help mitigate.
"We are monitoring the situation closely nonetheless as the Group continues to be weighed by relatively high borrowing levels which cannot be addressed over the longer term in this manner," it said in a research note.
"Our Trading Buy call is retained, with target price of RM0.71 also unchanged at this juncture."
The research house said the potato chip segment is making significant headway in countries like Japan and South Korea.
"The segment should be on track to doubling (to 30%) its contribution to Group revenue in two years.
It added that the group is looking into increasing production output within the next 15 months to support its expansion efforts.
"Higher margins generated by this segment are also expected to contribute more significantly in improving the Group’s overall margins in the longer term."
For the private placement, proceeds of RM22.7mil based on an illustrative issue price of 50 sen per share will be utilised predominantly (RM18mil) to pare down its borrowings which stand at a relatively large RM363.5mil as at January 2019.
Based on what’s been identified, annual interest savings of RM1.3mil are anticipated (RM660,000 interest saved from repayment of RM10m in medium-term notes, RM622,000 interest saved from partial repayment of bank overdraft and revolving credit).
"While seemingly inconsequential in absolute terms, it still does amount to about 9% of FY19 profit, which is fairly meaningful by some measure," said PublicInvest.
Limited time offer:
Just RM5 per month.
