TA retains "sell" on KPJ after rights and bonus issue

TA retains "sell" on KPJ after rights and bonus issue
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Tuesday, 30 July 2013 11:42

KUALA LUMPUR (July 30): TA Securities has retained its “sell” rating on KPJ HEALTHCARE BHD [] after the healthcare provider announced plans to increase its share base through a rights issue and a bonus issue.

The research house said in a note today the two exercises could result in dilution of KPJ’s earnings by 3.2% after incorporating the increase in interest income and outstanding shares.

“Following the proposed bonus and rights issue, along with adjustment to our earnings, our new target price for KPJ is RM7.14 a share, or RM4.65 a share when both are traded ex. This represents a total potential upside of 7.6%. That said, we maintain our ‘sell’ recommendation on KPJ,” said TA in the note.

Yesterday, the group announced its plans to disburse 329.77 million bonus shares on the basis of one bonus share for every two existing shares.

Additionally, KPJ intends to raise fund by issuing 43.97 million rights shares on the basis of one rights share for every 15 existing shares. The rights share has an indicative issue price of RM2.80 each.

The group plans to raise between RM121.91 million and RM123.11 million from the rights issue. According to TA’s note, the bulk of the proceeds will go to the CONSTRUCTION [] of KPJ Bandar Dato’ Onn Specialist Hospital, where the scheduled completion date has been pushed two years later to 2016.

RM35 million from the raised funds will be used to repay part of total borrowings, which stood at about RM627 million as at July 11.

KPJ will also attach two new warrants for every rights share subscribed. In total, there will be 87.94 million free detachable warrants.

KPJ’s stock increased three sen or 0.45% to RM6.75 as of 11:01 am. About 2 million shares were transacted.