News KNM (“KNMG“) announced that it would be
listing 488.9m new shares and 488.9m warrants on the 20th of Nov.
To recap, in June-12, the company proposed a one-for-two
(1:2) rights issue with free detachable 5-year warrants for the rights shares
on a one-for-one (1:1) basis. Each share cost RM1.00. Previously, the company
had 1.0b shares.
Comments The exercise raised RM195m in cash (40% of
the RM1/ share), while the remaining 60 sen per share was capitalised from
KNM’s share premium account.
A majority of the proceeds will be utilised to pay of debt,
and this will result in interest savings of RM7.3m for the year.
We are positive that the new rights shares will help to relieve
the burden of the company. However, it will also lead to a dilution of the
existing shares.
Outlook Management
foresees FY12 earnings to be in the black due to its legacy projects being
completed within CY12.
Some plant capacity rationalisations may be carried out as
certain plants (e.g Brazil/Indonesia/Australia) still seem to be suffering from
low utilisation.
The Peterborough project will purportedly receive financing
approvals soon with the commencement of EPCC works by early 2013.
Forecast We have increased our net profit forecasts
for FY12-14 by 10.9%, 7.4% and 6.1% respectively.
However, given the new rights issued, our EPS forecasts have
been reduced by 32.8% p.a respectively.
Rating MAINTAIN MARKET PERFORM
Valuation Based on an unchanged targeted PER of 9.0x,
our fair value has been reduced to 53 sen on the adjusted EPS of 5.9sen.
We have opted to use basic EPS as the warrants will only
expire in 5 years time.
The PER target above is a discount to the sector average of
15.0x due to the significant risk in the earnings of the company.
Risks 1) Disappointing forward earnings trend and
2) delay in its larger projects that are imperative for margin improvement.
Source: Kenanga
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