Hot Stock Public Bank falls 1% after proposing rights issue

by **Cals** Thu 01 May 2014, 01:44

Hot Stock Public Bank falls 1% after proposing rights issue

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Wednesday, 30 April 2014 10:39

KUALA LUMPUR (Apr 30): Public Bank Bhd fell as much as 1% after the lender proposed to raise funds via a rights issue of new shares. As the exercise involves the creation of new shares, analysts expect the exercise to result in earnings per share (EPS) and return on equity (ROE) dilution in Public Bank.

At 10.30am, Public Bank was traded at RM20.02 with some 1.4 million shares done. The bourse's fourth-largest decliner had earlier fallen as much as 18 sen to RM19.98.

Yesterday, Public Bank said its rights issue would raise up to RM5 billion. The proceeds would finance the group's working capital needs.

The group said it had not determined the entitlement, and issue price for the rights shares.

Today, Hong Leong Investment Bank Bhd wrote in a note Public Bank's EPS and ROE will be diluted by about 6% and 16% respectively.

"We are neutral to slightly positive about the rights issue. Despite the EPS and ROE dilution, its capital ratio (which is among lowest vis-à-vis peers) will be boosted to a level that is comparable to peers.

"More importantly, it will eliminate uncertainties about the timing of a cash call and its capital position," Hong Leong said.

Hong Leong has maintained its "hold" call for Public Bank shares with an unchanged target price of RM19.08.

RHB Research Institute Sdn Bhd analyst David Chong said the firm expected
a 3% to 8% dilution in its EPS forecast for Public Bank. The forecast is for financial years ending December 31, 2014 and 2015.

ROE dilution is seen at 200 to 300 basis points or between 2% and 3%.

"We have not factored in the rights issue in our model. Assuming the full MYR5bn is raised and the rights proceeds earn 3.3% p.a.(per annum) (3-month KLIBOR rate), we estimate the fund-raising exercise would enhance our FY14F-15F net profit projections by 1.4-2.6%.

"We keep our Gordon Growth Model derived FV (fair value) of MYR19.90 unchanged for now. Valuations already look fair and therefore, we retain our "neutral" recommendation on the stock," Chong said.