KUALA LUMPUR: GDB Holdings Bhd’s proposed bonus issue bodes well for the counter as the exercise could help improve the stock’s trading liquidity and marketability.
The company has proposed to undertake 1-for-2 bonus issue of shares and 2-for-5 bonus issue of warrants.
The proposed bonus issue of shares entails the issuance of 312.5 million new shares which will increase its enlarged share base to 937.5 million shares.
Meanwhile, the proposed bonus issue of warrants entails the issuance of 250 million five-year warrants, which will further increase the group’s share base to 1.187 billion shares upon full conversion of warrants.
Based on an indicative exercise price of 54 sen per warrant, the gross proceeds to be raised upon full exercise of the warrants are RM135mil, which will be used as additional working capital for GDB and its subsidiaries.
TA Research is positive on the proposal as the improved liquidity for GDB could increase trading interest in the stock.
The brokerage maintained its “buy” call on the company with an unchanged target price of RM1.05, based on unchanged 12 times 2022 earnings.
It also set the ex-bonus issue target price at 70 sen.
“We are neutral on the proposed bonus issue of warrants. While there will be dilution in earnings per share upon warrant conversion, the proceeds to be raised will help to strengthen the balance sheet of GDB for additional working capital for the group, ” TA said in a report.
As at end-December 2020, the group is in a net cash position of RM81.8mil.
The proposed bonus issue of shares and warrants are expected to be completed in Q3’2021.
TA has maintained its FY21 to FY23 earnings forecasts at this juncture pending the approval of the proposals.
For FY20, its revenue had jumped 12.4% to register a record annual revenue of RM362.8mil. However, net profit declined 11.8% to RM25.7mil, mainly negatively impacted by suspension of works during the movement control order period.
In an earlier report, TA introduced its FY23 forecast for GDB with a projected net profit of RM61.8mil, representing a year-on-year earnings growth of 16%.
TA noted that the company carries an outstanding order book of RM2.06 bil as of end-December 2020, translating into a strong cover ratio of 5.7 times over FY20 revenue. This could provide earnings visibility to the group for the next three years.
Its tender book is estimated at RM1.3bil. For FY21, management has targeted to replenish RM500mil of order book, versus TA’s assumption of RM600mil.