Kelington Group - 1-For-1 Bonus Issue

News   

- Proposed a 1-for-1 bonus issue of up to 79.11m shares of RM0.10 each. The bonus issue worth RM7.911m would be distributed solely from the company’s share premium and retained profits of RM39.1m.

- Employees’ share option scheme (ESOS) of up to 10% of the issued and paid-up share capital for eligible employees. As at 2 May 2012, there were 7.1m outstanding options granted under ESOS. 

- The entitlement date will be determined later upon the approval from the relevant authorities and shareholders.

Comments 

- We are positive on the exercise as we expect the bonus issue to enhance Kelington’s liquidity and reward shareholders with a higher trading volume of the stock. 

- Assuming full exercise of the ESOS and proposed Bonus Issue, the company’s share base will increase by 117.9% to 172.4m shares (from current level of 79.1m). 

- The exercise will result in FY12E-13E EPS being adjusted down by 54% each to 6.2 sen–7.3 sen, implying FY12E-13E PER of 6.1x-7.1x.

- FY12E-13E NDPS will be lower by 54% to 1.6-1.8 sen from 3.4-4.0 sen each previously, implied post-exercise yields of  3.6%-4.2% for FY12-FY13, which are still attractive.

  

Outlook  

- We are still positive on Kelington as we expect the tech sector to be better in 2HCY12 due to a higher market demand. 

- In the market, demand has been strong for engineering solution provider, which is mainly coming out of Asia. 

- Coupled with a better outlook for the tech sector, we expect the group’s earnings to grow 25% and 17% in FY12 and FY13 respectively as it benefits from the recovery trend.

Forecast

- Maintaining FY12E-13E earnings of RM10.7mRM12.5m as the bonus issue will not change the company’s fundamentals.

- Post bonus issue, current FY12E-13E EPS of 13.5 sen-15.9 sen will be adjusted down by 54% each to 6.2 sen-7.3 sen. However, FY12E-13E PER remains the same at 6.1x-7.1x.

Rating  MAINTAIN OUTPERFORM

Valuation   Maintain  our  TP  of  RM1.10  (ex-bonus  issue: RM0.50) based on Fwd PER of 8.0x on our FY12E EPS of 13.5 sen.

Risks

- Failure to secure more projects.

- Industry downturn. 

Source: Kenanga