May 12, 2010

PETRA PERDANA Maintain Buy Target RM1.65: HWDBS Comment

Petra Perdana Stock 7178 (RM1.38; Buy; Price Target: RM1.65)

Proposed placement and rights issue Petra Perdana (PPB) has proposed to undertake a placement exercise of 29.7m new shares (10% of paid-up capital), which would be followed by a rights issue together with issue of new free detachable warrants. This is to raise funds for leasing of vessels, repayment of borrowings, and to increase working capital of the group. Indicative issue price for the placement and rights are RM1.35 and RM0.93, respectively, bringing total proceeds from this cash call exercise to c.RM109.7m.

We understand that major shareholders – Shamsul bin Saad, Dato’ Kho Poh Eng and Koh Pho Wat (cumulative stake of 12.9%) – have committed to take up their portion. Based on our initial assessment, we expect the impact of the cash call exercise would be: (i) share base increase of c.48% to 439.6m shares (assuming 1 free warrant for every 2 rights shares); and (ii) potential EPS dilution of 32% (full dilution). The placement is expected to be completed by 2Q10 while the rights issue by end of 2010.

We believe the cash call exercise will strengthen PPB’s balance sheet (gearing level of 0.5x upon full dilution from 0.8x currently), as well as increase its existing working capital. We understand that PPB is also looking at an interest cost savings of RM2.9m/annum for the repayment of borrowings. We maintain our Buy call and TP of RM2.60, based on 9x CY10 earnings, at this juncture. 

by HWDBS Vickers