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PETALING JAYA: Scomi Group Bhd’s proposed one-for-two rights issue would lead to a massive dilution in its earnings per share (EPS), a research house said.
AmResearch Sdn Bhd had yesterday downgraded its call on the share from a “buy” to a “sell” due to the EPS dilution of 24% to 30%, weighed down by poor market sentiment.
Scomi closed 0.5 sen down at 35.5 sen.
Scomi’s corporate exercise involved a renounceable one-for-two rights issue of up to 554.4 million new shares at 30 sen per share to raise between RM120mil and RM166mil.
The rights issue would increase the share base from 1.02 billion shares to 1.57 billion and raise RM120mil.
AmResearch said Scomi’s current net gearing of 1.2 times and the likely EPS dilutive impact, proposed equity-raising exercise and poor markets were among the factors which would have a negative impact on the stock.
It was negative on the rights issue due to Scomi’s weak share price performance, which had fallen 64% year-on-year.
The research house was concerned with the plunge in the crude oil price, which had fallen 70% since July, and its impact on the oil and gas industry.
Another concern was the cancellation of orders from customers following the credit crunch.
“Raising equity during this period of weak market conditions where Scomi’s share price is trading at a financial year 2009 price-to-earnings ratio of only three times will lead to dilution in Scomi’s valuation and will likely dampen interest in the stock,” it said.
AmResearch said the impact on Scomi’s net gearing would be slight due to the relatively low rights price.
However, the research house was concerned over Scomi’s results for the third quarter ended Sept 30, for which it reported a RM19.33mil net profit compared with RM31.78mil in the same quarter last year.
It has lowered its forecasts for Scomi’s earnings for the financial years ending Dec 31, 2008 to 2010 by 9% and 14% due to lower expectations for growth of the oilfield services division and lower margins.
As part of the corporate exercise, Scomi chief executive officer Shah Hakim@Shahzanim Zain, Datuk Kamaluddin Abdullah and parties acting in concert would provide an irrevocable written undertaking to subscribe in full to the renounceable rights shares under the minimum subscription level scenario.
They would also seek an exemption from having to undertake the mandatory takeover offer for the remaining shares if the subscription triggered the mandatory offer threshold.
If the rights issue was not subscribed at all, their total stake in Scomi could rise from 34.3% to between 52.8% and 62.5%.
