E&O stock price tumbles on cash call

PETALING JAYA: Eastern & Oriental Bhd (E&O) saw RM318.4mil erased from its market capitalisation as investors were unreceptive towards its cash call despite some analysts saying the move would put the group on a stronger footing.

Affin Hwang Capital Research believes the overhang from the equity issuance would dampen sentiment on the stock in the short to medium term.

“But the long-term prospects for E&O remain good, with the scheduled completion of the 253-acre Seri Tanjung Pinang Phase 2A (STP2A) by September 2019. Maintain as ‘buy’,” it said.

E&O shares plunged 22.02%, the most in 21 years, to close at 85 sen yesterday with 36.65 million shares being traded. The dive in its share price erased RM318.4mil from its market capitalisation, reducing it to RM1.12bil from RM1.44bil on Monday. It is trading at a price earnings ratio of 12.64 times.

E&O has proposed a cash call to raise RM550.3mil via a private placement and a renounceable rights issue to fund its property development projects.

The proposed private placement will involve the issuance of up to 10% of E&O’s issued share capital, which currently stands at 1.31 billion stocks.

The renounceable rights issue will include free detachable warrants on an issue price and basis to be determined later.

The corporate exercise is expected to reduce E&O’s net gearing of 0.61 times as at end-financial year 2018 (FY18) to 0.42 times in the minimum scenario and 0.24 times in the maximum scenario (before the exercise of the warrants to be issued) based on the indicative issue price of the private placement at RM1.12 and the rights issue at RM1.20.

The basis for the indicative rights issue is one rights share for every four existing shares held with two free warrants to be issued for every two rights shares subscribed.

“The equity issuances will support E&O’s plan to launch new projects this year while keeping its gearing at a manageable level,” Affin Hwang said.

The research house has reiterated its “buy” call on E&O with a target price of RM1.55 based on a 50% discount to its revalued net asset value (RNAV) of RM3.11.

Meanwhile, MIDF Research has maintained its “neutral” call on E&O with an unchanged target price of RM1.22.

“We are neutral on the fund raising as the share dilutive impact should be mitigated by interest savings to E&O,” the research house said, adding that upon the completion of the fund-raising exercises, the share base of E&O is expected to increase by 51% to 1.98 billion shares.