Dialog Group Bhd (Dec 16, RM2.54)
Maintain outperform at RM2.44 with target price of RM3.64: Though the cash call and full warrant exercise could dilute our earnings per share (EPS) forecasts by up to 18% to 21% and knock 13% off our target price, it would not change our “outperform” call. We continue to value the stock at its sum-of-parts value.
Dialog has fixed the issue price for its one-for-five rights issue at RM1.20. The rights issue comes with free warrants on the basis of one-for-10 rights shares. The exercise price of the warrants has been set at RM2.40.
We were not surprised by the development as Dialog had announced the rights issue proposal on Aug 18 following the award of the Balai marginal field project on Aug 16. As at end-September this year, Dialog had RM92 million (4.6 sen per share) net cash. The cash call is expected to raise up to RM957 million (RM478 million from rights issue + RM478 million from full exercise of warrants). The proceeds will be used to fund the Balai project and the Pengerang tank terminal, which come under the Economic Transformation Programme (ETP).
We advise shareholders to subscribe to the rights given the steeply discounted rights price of RM1.20. The issue price represents a 46% discount to the theoretical ex-rights price of RM2.23, based on the five-day average of RM2.43. This fundraising exercise could enlarge Dialog’s share base by up to 30% from two billion (as at circular date of Oct 28) to 2.6 billion. We expect to reduce our FY12 ending June to FY14 EPS forecasts by 13% to 16% following the expected completion of the rights issue in February 2012. The warrants will expire in five years. Imputing RM957 million proceeds and a fully enlarged share base of 2.6 billion, we arrive at a fully diluted target price of RM3.18 compared with RM3.64 currently. — CIMB Research, Dec 16
This article appeared in The Edge Financial Daily, December 19, 2011.
Maintain outperform at RM2.44 with target price of RM3.64: Though the cash call and full warrant exercise could dilute our earnings per share (EPS) forecasts by up to 18% to 21% and knock 13% off our target price, it would not change our “outperform” call. We continue to value the stock at its sum-of-parts value.
Dialog has fixed the issue price for its one-for-five rights issue at RM1.20. The rights issue comes with free warrants on the basis of one-for-10 rights shares. The exercise price of the warrants has been set at RM2.40.
We were not surprised by the development as Dialog had announced the rights issue proposal on Aug 18 following the award of the Balai marginal field project on Aug 16. As at end-September this year, Dialog had RM92 million (4.6 sen per share) net cash. The cash call is expected to raise up to RM957 million (RM478 million from rights issue + RM478 million from full exercise of warrants). The proceeds will be used to fund the Balai project and the Pengerang tank terminal, which come under the Economic Transformation Programme (ETP).
We advise shareholders to subscribe to the rights given the steeply discounted rights price of RM1.20. The issue price represents a 46% discount to the theoretical ex-rights price of RM2.23, based on the five-day average of RM2.43. This fundraising exercise could enlarge Dialog’s share base by up to 30% from two billion (as at circular date of Oct 28) to 2.6 billion. We expect to reduce our FY12 ending June to FY14 EPS forecasts by 13% to 16% following the expected completion of the rights issue in February 2012. The warrants will expire in five years. Imputing RM957 million proceeds and a fully enlarged share base of 2.6 billion, we arrive at a fully diluted target price of RM3.18 compared with RM3.64 currently. — CIMB Research, Dec 16
This article appeared in The Edge Financial Daily, December 19, 2011.
