Johore Tin - Rights Shares Fixed at RM1.28

THE BUZZ  

Johore Tin (Johortin) informed Bursa Malaysia yesterday that it has fixed the issue price of  its  rights  shares  at  RM1.28  each,  representing  a  discount  of  about  31.6%  to  the theoretical  ex-rights  price  of  RM1.87  per  Johortin  share.  The  board  also  fixed  the exercise price of RM2.28 each for the warrants, which have tenure of five years.

OUR TAKE  
 
Exercise to wrap up by 27 Nov. The exercise is expected to raise some RM29.9m  to fund  the  group’s  expansion.  The  issue  price  of  RM1.28  per  rights  share  is  at  a  31.6% discount to the theoretical ex-rights price per Johortin share of RM1.87. This was based on the share’s five-day volume weighted average market price (WAMP) of RM2.07 up to and  including  9  Oct  2012.  Meanwhile,  the  exercise  price  of  the  warrant  represents  a premium  of  approximately  21.9%  to  the  theoretical  ex-rights  price  of  RM1.87  per Johortin share based on the five-day volume weighted average market price (WAMP) of RM2.07 per share up to and including 9 Oct 2012. The warrants, if fully converted into Johortin shares, will potentially raise proceeds amounting to RM53.2m, although warrant holders are unlikely to convert to the mother share in the near term.
 
New  funds  to  boost  long-term  earnings.  The  group  will  be  allocating  RM15m  to expand its warehouse and factory and spending RM5m to purchase new machinery and equipment.  Apart  from  these,  it  will  also  set  aside  RM5.2m  and  RM0.5m  for  working capital  and  expenses  relating  to  the  rights  issue  exercise  respectively.  Under  the maximum scenario whereby all the warrants are exercised, the group intends to use the proceeds as working capital and pay its overhead expenses or bank borrowings, which will ultimately lower its overall interest cost. 
 
Balance sheet  still healthy.  Johortin will be forking out RM20m in capital expenditure over the next two years as well as pay RM5m to Able Dairies’ previous owner. When the group purchased Able Dairies in November 2011, the latter came with a profit guarantee
(PAT)  of  RM7m  for  FY11  and  RM10m  for  FY12.  To  protect  Johortin’s interest,  its management had withheld a sum of RM8.5m - representing half of the profit guarantee for both years - to ensure that Able Dairies fulfils its profit guarantee. As we expect Able Dairies to achieve a PAT of RM10m this year, Johortin will most likely pay the RM5m as agreed upon by both parties during the sale transaction. We expect the group to be in a net cash position by the end of this year.
 
Maintain  BUY.  All  in,  we  are  reiterating  our  BUY  recommendation  on  Johortin.  We maintain  our  RM2.38  FV  -  based  on  sum-of-parts  valuation  –  since  we  have  already diluted its earnings based on the enlarged share base, assuming full subscription of the rights shares. However, we have  yet to dilute the group’s earnings per share based on the full exercise of its warrants.

Source: OSK