Proposed Bonus Issue and Free Warrants

News

• Homeritz proposed a bonus issue of up to 100m new shares on the basis of one bonus share for every 2 existing shares held.
• The group also proposed bonus issue of up to 50m free warrants on the basis of one warrant for every 4 existing shares held. The bonus shares will not be entitled for the free warrants.
• The proposals announced are expected to be completed by 3QFY15.

Highlights

• We are neutral to slightly positive on the proposed announcement as it would result in a larger share base capital, enhancing the liquidity and marketability of the shares.
• The proposed bonus issue of warrants would have a 5- year maturity period of which may be exercised at any time, commending on and including the date of issuance.
• As for the impact towards share base, the minimum case scenario would enlarge Homeritz’s share base by 50% to 300m shares.
• Assuming all dilutive securities are exercised (maximum case scenario), the group’s share base would increase to 350m shares.

Forecasts

• Maintained as the proposed corporate exercises does not result any significant changes to our forecasts.

Rating

BUY

• Positives: 1) the group could benefit from strong USD; (2) its revenue and PATAMI are expected to grow at CAGR of 8% and 14% respectively from FY14 to FYE16; (3) it has net cash per share of 23 sen; and (4) Still attractive FY15E DY of 4.3%, based on 40% payout ratio.

Negatives

• USD weakness; high raw material prices; high labour costs; unexpected economic downturn; and production or operational risks.

Valuation

• We maintain our TP at RM1.54 (based on 10x P/E which is premium to the furniture industry average P/E of 8x as we forecast the Group’s CAGR growth at 14%).
• Post-bonus issue, our TP would be adjusted from RM1.54 to RM1.02 (vs. ex-price at RM0.77).

Author: kltrader   |   Publish date: Wed, 6 May 2015, 10:06 AM 

Source: Hong Leong Investment Bank Research - 6 May 2015