- We maintain our BUY
call on MBM at unchanged fair value of RM5.80/share. MBM has fixed its rights issue at
RM1.42/share while the accompanying warrants’ exercise price has been fixed at RM3.20/share.
- As a recap, the
corporate proposals entail: (1) A 3 for 10 rights issue involving the issuance of 74mil new
shares; (2) A 3 for 10 free warrants accompanying the rights issue; (3) Bonus issue of 74mil
shares, also on the basis of 3 for 10. To note, the bonus issue will be executed after the
rights issue.
- The rights issue will
raise some RM105mil new cash from shareholders to strengthen MBM’s balance sheet
capacity. Meanwhile, the free warrants which entail a 1 for 1 exercise ratio once fully
exercised will raise a further RM237mil for the group.
- More importantly, the
rights issue will enhance MBM’s equity by 8% while lowering net gearing to 5% from 14%
as of Dec 2011. Full exercise of the warrants meanwhile, will expand equity by some
34% and current net gearing will reverse into a net cash position.
- Post recapitalisation,
MBM will be on a much stronger footing to gear up for massive expansion, particularly
into the vehicle assembly segment where it is absent currently. Almost half (or circa
RM50mil) out of the RM105mil proceeds from the rights issue has been allocated for this
purpose. The remaining will be utilised for expansion of MBM’s retail and service
network as well as repayment of bank borrowings.
- The impact on YoY
earnings growth is likely to be minimal. The rights issue will dilute EPS by 30%, but this is
offset by incremental earnings largely coming from Hirotako, which we estimate to account for
the bulk of MBM’s 28% YoY net profit growth in FY12F. We expect net profit to grow by a
further 12% in FY13F driven by OMI’s expansion into alloy wheel manufacturing and
expansion of MBM’s auto retail network.
- More importantly, we
have not factored in earnings from MBM’s vehicle assembly plans, which is expected to
kick off in FY13F, and where the bulk of dilution from the rights issue should be attributed to.
Our back of the envelope calculations suggests that a typical assembly &
distribution model at 60K/annum capacity could create additional earnings of RM158mil (before
minority interest), which could almost double our current FY13F net profit forecast.
Source: AmeSecurities
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