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LUMPUR: CIMB Equities
Research has advised Thong Guan investors to subscribe for the
irredeemable convertible unsecured loan stocks (ICULS) with free
warrants issue.
It said on Thursday Thong Guan’s share price is up 16% since it initiated coverage last month. Even then, the stock's valuation remains undemanding at a basic 2015 price-to-earnings (P/E) of 8.1 times or 14.2 times (fully-diluted basis).
The company set the ex-date for its proposed ICULS issue on Sept 12. Funds raised from the ICULS will help fund the company’s RM100mil capex over the next three years.
CIMB Research’s target price is RM3.95, which is 32.1% above its last traded price of RM2.99.
“We maintain our EPS forecasts and Add recommendation, with an
unchanged implied target price of RM3.95 (30% discount to its ex-ICULS
and warrants fully-diluted sum-of-parts a share).
“The large SOP discount is to reflect its small market capitalisation and tight stock liquidity. Potential catalysts for the stock include stronger group EBITDA margins and regional M&A developments,” it said.
In February, the company proposed a RM52.6mil ICULS issue on a basis of one ICULS for every two shares. In addition, shareholders will get free warrants on a one-for-two basis for the ICULS.
The ICULS conversion ratio is one ICULS to one share – only from the third year onwards – while the warrants can be converted to underlying shares anytime once listed at an exercise price of RM1.50 a share.
Thong Guan’s RM40mil cashflow from operations annually is also expected to support its capex spending. Its balance sheet is healthy, with a net cash of RM8mil as at end-June. We estimate the group's annual production capacity to rise 40% to around 170,000 tonnes in three to four years, with capacity growth to come mainly from thin-stretch films, garbage bags, industrial/commercial bags and PVC food wrap lines.
It said on Thursday Thong Guan’s share price is up 16% since it initiated coverage last month. Even then, the stock's valuation remains undemanding at a basic 2015 price-to-earnings (P/E) of 8.1 times or 14.2 times (fully-diluted basis).
The company set the ex-date for its proposed ICULS issue on Sept 12. Funds raised from the ICULS will help fund the company’s RM100mil capex over the next three years.
CIMB Research’s target price is RM3.95, which is 32.1% above its last traded price of RM2.99.
“The large SOP discount is to reflect its small market capitalisation and tight stock liquidity. Potential catalysts for the stock include stronger group EBITDA margins and regional M&A developments,” it said.
In February, the company proposed a RM52.6mil ICULS issue on a basis of one ICULS for every two shares. In addition, shareholders will get free warrants on a one-for-two basis for the ICULS.
The ICULS conversion ratio is one ICULS to one share – only from the third year onwards – while the warrants can be converted to underlying shares anytime once listed at an exercise price of RM1.50 a share.
Thong Guan’s RM40mil cashflow from operations annually is also expected to support its capex spending. Its balance sheet is healthy, with a net cash of RM8mil as at end-June. We estimate the group's annual production capacity to rise 40% to around 170,000 tonnes in three to four years, with capacity growth to come mainly from thin-stretch films, garbage bags, industrial/commercial bags and PVC food wrap lines.
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