KUALA LUMPUR: RHB Investment Bank Research is neutral on Coraza Integrated Technology Bhd
’s private placement and downgraded the company to “neutral” with a lower target price of 87 sen.
“We are neutral on the proposals, given the potential near-term share price overhang and dilution to EPS, but believe the funds raised to finance expansion and facility upgrades could accelerate and capture various growth opportunities,” the research house said.
Coraza Integrated has proposed a private placement of up to 20% of total number of issued shares, potentially raising up to RM69.5mil in multiple tranches. It has also proposed a long-term incentive plan (LTIP) of up to 10% of the total issued share capital over five years.
“Despite the near-term dilution to its EPS, we understand that this exercise will allow Coraza to increase its capacity and expand its machining capability for high tolerance and complex components, while tapping into new markets and broadening its customer base.
“A clean room and additional facility are planned for high-level assembled semiconductor products.
“On a proforma basis, EPS dilution would be at 20%, assuming the maximum scenario before taking into account the proceeds utilisation. Net tangible asset/share could rise to 17 sen per share, while net cash per share may increase to 15 sen from 2 sen currently,” RHB said.
The research house said despite current inflationary challenges and softening demand from the semiconductor space, especially in the first half of 2023, Coraza’s management remains cautiously optimistic and will continue to explore opportunities to expand the existing portfolio to a more diversified customer exposure.
“New project wins from the aerospace, telecommunications, and instrumentation industries will help to cushion the demand volatility.
“Moving forward, margins may improve from stabilising raw material prices, operational efficiencies, and a favourable product mix, along with the ongoing cost pass-through exercise,” it said.
RHB said its forecasts are unchanged, except for the minor effects from tweaking its capex assumptions.
“We assume the maximum scenario dilution from the proposals resulting in a lower target price of 87 sen (was RM1.04), based on unchanged FY23F fully diluted price-earnings of 20 times (a discount to industry peer average of circa 30 times) and after applying a 2% ESG (environmental, social and governance) discount, based on our proprietary ESG methodology.”
