Sunway’s proposed bonus issue of shares and warrants garner positive views
KUCHING: Sunway Bhd’s (Sunway) proposed bonus issue of shares and warrants has garnered positive views from analysts.
Sunway announced in a filing on Bursa Malaysia of its proposal to undertake a bonus issue of up to 2.8 billion new shares on the basis of four bonus shares for every three existing Sunway shares held on an entitlement date to be determined later.
The group also proposed a bonus issue of up to 631 million free warrants in Sunway on the basis of three warrants for every 10 existing Sunway shares held on the same entitlement date as the proposed bonus issue of shares.
AmInvestment Bank Bhd (AmInvestment Bank) was positive on the proposed bonus issue of shares and warrants.
“On the bonus issue of shares, it is a way to reward shareholders while preserving cash in the company,” AmInvestment Bank said.
Additionally, the research firm expected the marketability and trading liquidity of Sunway shares to be improved by the larger capital base and lower price per share. As for the bonus issue of warrants, AmInvestment Bank noted that assuming full exercise of the warrants at an indicative exercise price of RM1.53 per share, the company could potentially raise the maximum gross proceeds of RM965.4 million.
Although in the short term the warrants might be dilutive to the earnings per share ( EPS), the research firm believed in the long-term, the proceeds will be utilised to grow the company further, which will be positive to its longterm EPS growth.
The research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) was also positive on the news as the bonus issue is expected to enhance the trading liquidity of Sunway.
On another note, MIDF Research highlighted that Sunway will be reclassified from Properties sector to Trading/Services sector with effect from June 16, 2017.
“We understand that the reclassification of sector was due to Sunway’s long term strategy in expanding its trading/services divisions namely healthcare and education businesses aside from growing its property development business,” the research arm said.
“Notably, Sunway has four medical centres in the pipeline namely Sunway Medical Centre Velocity, Sunway Medical Centre Seberang Jaya, Sunway Medical Centre Ipoh, and Sunway Medical Centre Damansara which will add 1,090 beds by year 2020.”
All in, MIDF Research maintained its earnings forecast for financial year 2017 ( FY17) and FY18 as the research arm expected no earnings impact from the proposed bonus issue.
MIDF Research revised higher its target price for Sunway to RM3.64 per share.
“While we are positive on the proposed bonus issues, we opine that its impact has been mostly priced in as share price of Sunway gained 19 per cent in the past three months,” the research arm said.
Hence, MIDF Research maintained its ‘neutral’ recommendation.