KUALA LUMPUR: PublicInvestment research has expressed its concern over Yong Tai Group Bhd's special share issue comprising a total of 400 million shares, given its highly dilutive effects.
In a note, the research house said it was concerned over the share price dilution given that earnings from its on-going projects will only kick-in more significantly in late FY20/early FY21 at the earliest.
The research house added that there may be signs of debt financing issues for Yong Tai.
"The equity raising route at relatively low share prices vis-à-vis just over a year ago when prospects looked promising suggests of difficulties in obtaining debt financing at rates commensurate with its prospects, somewhat troubling to us," it said.
To recap, a special issue of 300 million shares will be taken up by three parties in eqal porportions while 100 million shares will be placed out to third-party investors to be identified.
The share base of the company will eventually balloon to 1.18 billion shares, post conversion of 32.6 million outstanding warrants (at 50 sen per share) and 216 million irredeemable convertible preference shares (ICPS) on a one-for-one basis.
Yong Tai's management had stated that the proposed special issue will contribute positively to the future of the group due to the availability of additional funds toward its ongoing development projects.
PublicInvest continues to see value in the long-term but noted that near-term confidence in Yong Tai will depend on its turnaround of Encore Melaka theatre, which is experiencing disappointing ticket sales.
It maintained its neutral call on Yong Tai given the cloudy near-term earnings outlook.
The research house reduced the target price to 41 sen from 55 sen previously to account for the recent share placement exercise while increasing the sum-of-parts discount to 60% from 50% previously.
Post-completion of the latest share issuance scheduled for 2H19, the target price will be adjusted to 27 sen, it said.
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