CIMB: Sunway rights issue is negative for share price

CIMB: Sunway rights issue is negative for share price
Business & Markets 2013
Written by Ho Wah Foon of theedgemalaysia.com
Monday, 08 April 2013 11:36


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Monday, 8 April 2013

KUALA LUMPUR (April 8): Sunway Bhd’s proposed 1-for-3 rights issue is negative for share price and investors should stay on the sidelines, said CIMB today.

“Stay on the sidelines. The cash call, though positive in the longer term, is negative for the share price,” said CIMB analyst Sharizan Rosley in his note.

“We estimate that the rights issue will dilute FY14-15 EPS by 26% as it will swell the share base by 46% to 1.9 billion shares,” added the analyst, who has estimated an ex-rights target price of RM2.42.

However, CIMB believes that the downside is limited as the stock is supported by investors' positive expectations for companies with exposure to Iskandar Malaysia and the group's strong CONSTRUCTION [] job wins year to date.

Sunway's 1,858 acres of landbank in Iskandar, a hot spot for property development and intense foreign investments, make up 12% of its RNAV.

Last Friday, Sunway proposed a 1-for-3 renounceable rights issue priced at RM1.17, a 62% discount to Sunway's last close of RM3.16.

According to CIMB’s analysis, Sunway's rights issue at RM1.17 is set to dilute FY14-15 EPS by 26% even though the proceeds of up to RM1 billion will go towards new land-bank, property investments and debt repayment.

any rights issue would dilute share vol and prices