PETALING JAYA: While Coraza Integrated Technology Bhd
’s proposed private placement would facilitate the group’s expansion, the exercise could give rise to a potential near-term share price overhang and dilution to earnings per share (EPS).
As such, RHB Research has downgraded its recommendation on Coraza to “neutral” from “buy”, with a lower target price of 87 sen, as compared to RM1.04 previously.
Coraza on Monday announced its proposal to undertake a private placement of up to 20% of the total number of issued shares, potentially raising up to RM69.5mil in multiple tranches.
The engineering support services provider had also proposed a long-term incentive plan of up to 10% of the total issued share capital over five years.
“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,” RHB Research wrote in its report yesterday.
On a proforma basis, EPS dilution would be at 20%, assuming the maximum scenario before taking into account the proceeds utilisation, the brokerage estimated.
As a result of the proposed corporate exercise, Coraza’s net tangible asset per share could rise to 17 sen, while net cash per share could increase to 15 sen from two sen currently, it added.
Nevertheless, RHB Research noted that the proposed corporate exercise would 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 have been planned for high-level assembled semiconductor products, it said.
“Despite current inflationary challenges and softening demand from the semiconductor space, especially in the first half of 2023, management remains cautiously optimistic and will continue to explore opportunities to expand the existing portfolio to a more diversified customer exposure,” RHB Research said.
“New project wins from the aerospace, telecommunications and instrumentation industries will help to cushion the demand volatility,” it pointed out.
RHB Research added that Coraza’s margins could improve in the near term from stabilising raw material prices, operational efficiencies and a favourable product mix, along with the ongoing cost pass-through exercise.
RHB Research said its forecasts were unchanged, except for the minor effects from tweaking its capital expenditure assumptions for Coraza.
The proposal is expected to be completed by the fourth quarter of 2023, upon securing relevant approvals including the shareholders’ mandate via an EGM.
