Quick take: Gadang falls almost 3% after announcing share placement

KUALA LUMPUR: Gadang Holdings Bhd’s shares fell almost 3% after announcing that it intended to raise RM62.12mil through private placement.

The counter shed 2.89%, or 2.5 sen to 84 sen with 1.8 million shares traded. Gadang-WB fell 5.8%, or two sen to 32.5 sen.

Gadang Holdings has proposed private placement to raise up to RM62.12mil.

Gadang said it will issue up to 82.825 million new ordinary shares, representing not more than 10% of the enlarged issued shares of 828.257 million as at May 7.

It said the issue price of the placement shares will be determined and fixed by the board at a later date.

However, it explained that it will be priced at no more than 10% discount to the 5-day volume weighted average market price (5D-VWAP) of Gadang shares immediately before the price fixing date.

“We are neutral with the proposed private placement, as we believe the group intends to maintain a better cash flows position,” JF Apex Research said.

The proceeds (RM49.6mil to RM62.1mil based on indicative issue price of 75 sen) are intended to be utilised as working capital for: a.) on-going construction projects (KVMRT2, Serdang Raya to University Putra Malaysia; Cyberjaya Hospital; and TRX, traffic dispersion and improvement work along Jalan Tun Razak) and b.) repayment of bank borrowings of RM13.5mil, which is expected to yield an annual interest saving of RM710,000 (outstanding bank borrowings stood at RM334.8mil based on 3QFY19’s quarter report).

JF Apex has maintained its earnings forecast for FY19 and FY20 pending approval on the proposal.

Meanwhile, the private placement might dilute our earnings forecast by 8.3% for FY20 to 8.8 sen per share from 9.6 sen per share.

“Maintain sell call with an unchanged target price of 74 sen. We peg our valuation with PER of 7.1x FY20 EPS,” JF Apex said.

“PER ascribed is +1 SDV of its 5-year historical mean as underpinned by revival of ECRL project which casts a boon to the construction players.

“Nevertheless, investors should take opportunity to lock in profit following its recent rally in share price,” it added.

Source: TheStar