PANTECH proposes bonus, ICULS and warrants

Pantech Group Holdings Bhd
(July 1, 86 sen)
Maintain buy at 85.5 sen with a target price of RM1.14: Pantech proposed a 1:5 bonus issue and a rights issue of up to RM77.24 million nominal value of ICULS and 77.24 million warrants attached on the basis of one for every 10 ICULS subscribed. They also proposed an exemption for CTL Capital Holding Sdn Bhd as well as several other parties from the obligation to undertake a mandatory general offer for the remaining Pantech shares not already owned by CTL.

The bonus issue will raise its share base to 463.5 million (assuming all 11.2 million ESOS options are exercised prior to the entitlement date) from the present 375.03 million shares, improve trading liquidity and reward the existing entitled shareholders by allowing them to have greater participation in the equity of the company.

ICULS issuance in the maximum scenario, together with warrant conversions, could see an additional 206 million new shares issuance. The RM77.3 million proceeds from the ICUL issuance is expected to be used for the acquisition of property, plant and equipment, investments in related and/or complementary businesses — including investments overseas — and for working capital requirements.

Net profit estimates for FY10 and FY11 are kept unchanged. The bonus exercise will not have any material impact on earnings, but will result in a downwards adjustment to basic EPS for FY11F and FY12F by 19.5% and 19% respectively to 12 sen and 13.2 sen (previously FY11F: 14.9 sen; FY12F: 16 sen). The ICULS is expected to raise Pantech’s interest expenses by RM5.4 million in the maximum scenario. However, we hold off incorporating any changes to earnings until the completion of the exercise.

We maintain a buy call with a target price of RM1.14 (95 sen ex-bonus assuming maximum scenario). Exercise is expected to be completed by 4QCY2010. — Kenanga Investment Bank Research, July 1


This article appeared in The Edge Financial Daily, July 2, 2010.