THE BUZZ
MBM Resources has announced that its rights issue will be
fixed at a price of RM1.42, while the exercise price of its warrants will be
set at RM3.20 per warrant. Both its bonus (3 bonus shares for every 10) and
rights issue will go ex on 21 May.
OUR TAKE
Rights issue as per indicative price. We note that the rights issue price remains unchanged
at RM1.42 as per indicative pricing proposed earlier in February. This represents
a discount of approximately 57.36% to the Theoretical Ex All Price of RM3.33 based
on the 5-day volume-weighted average price (VWAP). Note that Med-Bumikar will subscribe
to a total of 38,849,340 shares together with 38,849,340 free warrants. This represents 100% of the total
rights shares to be issued pursuant to the
rights issue with warrants based on the
minimum scenario, or
approximately 52.75% of the total rights
shares based on the maximum scenario. As the share price has moved higher since
the proposed announcement, the warrants’ exercise price has been adjusted
higher to RM3.20, from its earlier
indicative price of RM2.88. Based on the
5-day VWAP, the exercise price is now at a small discount of RM3.90%.
The expiry date for the warrants has yet to be determined. For more information, please refer to our
previous report entitled, “Bonanza for Shareholders” dated 27 Feb 2012.
A giant in the making.
With the larger equity base and the
group’s market cap breaching RM1bn, we see the counter coming into the radar of
institutional investors going forward, including foreign funds. As such, we
opine that MBM now warrants a higher PE multiple, given that its forward PE has
been averaging 5-6x all these years. In view of its enhanced share liquidity
and that 76% its earnings come from market leader Perodua, as well as its
dominant position in the airbag, steering wheel, and steel wheel segments, MBM
is morphing into an established integrated player with exposure across broad
segments and across various supply chains in the automotive sector.
Maintain BUY.
Subscribe to rights. We maintain our
SOP-derived fair value (FV) of RM5.34. This implies a forward PE multiple of 10.7x, which
is in line with the auto sector’s current average. Note that our FV remains
unchanged even after ex rights and bonus issue as we have already diluted its
earnings based on the enlarged share base. However, we have not diluted the
earnings using the conversion base from the exercise of its warrants, as we
reckon investors would hold MBM shares for the long term.
Source: OSK188
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