KUALA LUMPUR: Alliance Research is maintaining a Buy rating on Ahmad Zakri Resources Bhd (AZRB) following its corporate exercise.
AZRB had on Wednesday announced a six-for-eight rights issue. The rights issue price of 50 sen translates to a 32% discount to the last closing price on an ex-rights basis.
“This will raise RM103m which will largely be used to fund AZRB’s equity contribution for the East Klang Valley Expressway (EKVE). Proforma net gearing would be reduced from 79% to 21% ex rights and FY14-15 EPS diluted by 36%-43%. Maintain BUY with revised TP of RM0.89 on an ex-rights basis,” said the research house on Thursday.
The corporate exercise involves a par value reduction from 50 sen to 25 sen, (ii) renounceable rights issue of up to 207.7 million new shares on a basis of six rights shares for eight existing AZRB shares held, (iii) free detachable warrants on the basis of one warrant for every two rights shares, and (iv) establishment of an employee’s share scheme of up to 15% of the issued share capital of AZRB.
The rights issue price has been fixed at 50 sen. This translates to a discount of 31.6% to Wednesday’s closing price of 91 sen on an ex-rights basis 73 sen.
“Based on the current share base (ex-treasury shares), we estimate that the rights issue will bring about 206.6m new shares and raise RM103.3m in cash proceeds.
“RM75mil of the proceeds will be used to fund the equity contribution for the EKVE concession. Construction cost of the EKVE is RM1.55bil. RM15mil of the proceeds will be used to repay borrowings and the remaining RM13.3mil for working capital and estimated expenses for the rights issue,” it said.
Alliance Research said based on its 3QFY13 financial results, AZRB’s net gearing stands at 79.4%. Post rights issue, proforma net gearing is expected to be reduced to 21.1%.
“We maintain our BUY rating on AZRB. Our ex rights TP of 89 sen offers 22.3% upside to the last closing price on an ex rights basis (73 sen).
“At our ex-rights TP, the implied P/E for FY14-15 is 17.4 times and 11.3 times. While this may appear slightly expensive, one must bear in mind of AZRB’s valuable asset base which has yet to be earnings accretive such as the Kalimantan plantation land and the EKVE concession,” it said.