Wednesday 22 August 2012

Formis Resources - Tiding over challenging conditions


-  We maintain Hold on Formis Resources Bhd (FRB), with an unchanged fair value of RM0.83/share, based on an FY13F core EPS of 7.5 sen on a PE of 11x.

-  It has proposed a renounceable rights issue of up to 92.95 new redeemable convertible preference shares (RCPS) of 10 sen each on the basis of one RCPS for every three existing shares, at an issue price of RM1 per RCPS. 

-  The conversion of each RCPS will be carried out via its surrender for a new share, with the holders having right to do so starting from the first anniversary from the date of issue and up to the end of the fifth year.

-  FRB wants to raise a minimum of RM62mil – pursuant to the minimum subscription of the RCPS based solely on its existing paid-up capital of 185.9mil shares of RM1 each and excluding the potential exercise of 92.95mil outstanding warrants (currently out-of-the money). It expects to complete the proposal by the first quarter of 2013.

-  The company says the exercise price (now at RM1.10/warrant conversion into one share) and/or number of the outstanding warrants may be adjusted to ensure that the status of the holders is not prejudiced. The board will finalise and give notice of any necessary adjustment at a later date.

-  It intends to procure undertakings from certain substantial shareholders to subscribe to their respective RCPS entitlements and excess rights. The warrants and RCPS currently have an anti-dilutive effect on FRB’s earnings. As such, we maintain our forecasts for now.

-  Given its gross gearing of 0.5x, we believe the rights RCPS would allow the company to cut borrowing cost (the RCPS carries the right to receive a cumulative preferential dividend of 4% on the issue price) and to tide over the current challenging economic conditions. Gearing could be lowered to 0.25x based on the minimum subscription scenario.

-  Out of the minimum proceeds of RM62mil, nearly 90% or RM55mil would be used to repay borrowings – which totalled RM90.9mil as at 31 March 2012. Interest savings could range between RM3.9mil and RM6.3mil annually.

-  FRB’s earnings prospects continue to be dependent on its ability to secure private and public technology-based projects.  As at 30 June, 2012, FRB’s outstanding order book totalled RM158mil (vs. RM100mil as at 31 March 2012), and has so far in the current fiscal year secured RM75mil worth of new jobs. In the pipeline are over RM800mil worth of jobs, spanning across its entire business chain in distribution, networks, software, solutions and systems.

Source: AmeSecurities

No comments:

Post a Comment