Written by Financial Daily
Thursday, 15 October 2009 11:36
KUALA LUMPUR: HwangDBS Vickers Research has advised investors to subscribe to EASTERN & ORIENTAL BHD []’s one-for-two rights issue of 8% irredeemable convertible secured loan stocks (ICSLS) 2009/2019, while maintaining a buy on the stock with a RM2.10 target price.
“With the ex-date drawing closer, that is Oct 19, investors have three options — doing nothing is not an option given the 35% dilutive impact on EPS/NTA — which are to sell the mother share before the ex-date, sell the rights after the ex-date and subscribe to the rights, which we believe is the best option,” the research house said.
It likened the ICSLS to a “warrant with dividend”, towards leveraging on E&O’s re-rating potential as the sector continued to recover.
“We view E&O’s rights issue positively for the following reasons — it provides working capital to resume launches and take advantage of new opportunities; it should abate concerns about its high net gearing, improving it to 45% from 83%, and it eases the pressure to sell non-core assets at distressed prices,” it said.
The developer is raising between RM93 million and RM245 million via the rights issue, while its share base would grow by 50% to 1.1 billion units.
HwangDBS said, however, the earnings dilution should partially be offset by a contribution from E&O’s new property launches.
It said the developer had made between RM300 million and RM400 million in sales in the last four months, since it started resuming launches in Kuala Lumpur and Penang, with current unbilled sales leaping to RM500 million from just RM130 million in March this year.
“Sales are expected to pick up further with RM2 billion worth of launches over the next 12 months,” it said.
It also said while the ICSLS offered an 8% coupon compared with the existing average cost of debt of 5.5%, most investors were expected to convert to E&O shares since the ICSLS were in-the-money, while the company also had the option to force a mandatory conversion after two years if its share price exceeded RM1.
It added insiders had been increasing or maintaining their stakes in the company, showing a strong vote of confidence for its long-term prospects, while recent rights issue exercises had also seen the respective mother shares rise above their ex-prices.
“E&O has one of the highest earnings visibility in the sector with around RM500 million in unbilled sales, or two times FY09F property development revenue — one of the highest ratios in the sector,” it said.
It added the company’s stock still traded at a 47% discount to the research house’s RNAV of RM2.66, versus the sector average discount of 37% for mid-cap developers.
“E&O remains our top mid-cap pick to ride on the recovery in high-end demand and recent liberalisation measures by the government to improve the investability of Malaysian PROPERTIES [].
“It has a re-rating potential post the completion of its rights issue exercise that will strengthen its balance sheet and cashflow, and better position the company for growth opportunities,” the research house said.
Thursday, 15 October 2009 11:36
KUALA LUMPUR: HwangDBS Vickers Research has advised investors to subscribe to EASTERN & ORIENTAL BHD []’s one-for-two rights issue of 8% irredeemable convertible secured loan stocks (ICSLS) 2009/2019, while maintaining a buy on the stock with a RM2.10 target price.
“With the ex-date drawing closer, that is Oct 19, investors have three options — doing nothing is not an option given the 35% dilutive impact on EPS/NTA — which are to sell the mother share before the ex-date, sell the rights after the ex-date and subscribe to the rights, which we believe is the best option,” the research house said.
It likened the ICSLS to a “warrant with dividend”, towards leveraging on E&O’s re-rating potential as the sector continued to recover.
“We view E&O’s rights issue positively for the following reasons — it provides working capital to resume launches and take advantage of new opportunities; it should abate concerns about its high net gearing, improving it to 45% from 83%, and it eases the pressure to sell non-core assets at distressed prices,” it said.
The developer is raising between RM93 million and RM245 million via the rights issue, while its share base would grow by 50% to 1.1 billion units.
HwangDBS said, however, the earnings dilution should partially be offset by a contribution from E&O’s new property launches.
It said the developer had made between RM300 million and RM400 million in sales in the last four months, since it started resuming launches in Kuala Lumpur and Penang, with current unbilled sales leaping to RM500 million from just RM130 million in March this year.
“Sales are expected to pick up further with RM2 billion worth of launches over the next 12 months,” it said.
It also said while the ICSLS offered an 8% coupon compared with the existing average cost of debt of 5.5%, most investors were expected to convert to E&O shares since the ICSLS were in-the-money, while the company also had the option to force a mandatory conversion after two years if its share price exceeded RM1.
It added insiders had been increasing or maintaining their stakes in the company, showing a strong vote of confidence for its long-term prospects, while recent rights issue exercises had also seen the respective mother shares rise above their ex-prices.
“E&O has one of the highest earnings visibility in the sector with around RM500 million in unbilled sales, or two times FY09F property development revenue — one of the highest ratios in the sector,” it said.
It added the company’s stock still traded at a 47% discount to the research house’s RNAV of RM2.66, versus the sector average discount of 37% for mid-cap developers.
“E&O remains our top mid-cap pick to ride on the recovery in high-end demand and recent liberalisation measures by the government to improve the investability of Malaysian PROPERTIES [].
“It has a re-rating potential post the completion of its rights issue exercise that will strengthen its balance sheet and cashflow, and better position the company for growth opportunities,” the research house said.