This article first appeared in The Edge Financial Daily on July 11, 2017

TSH Resources Bhd
(July 10, RM1.72)
Reiterate neutral recommendation with an unchanged target price (TP) of RM1.87: TSH Resources Bhd announced last week that it is planning to undertake a 1.84% private placement of its shares, which would involve the issuance of 25 million new shares, increasing its share capital from 1.35 billion to 1.38 billion shares. 

The shares will be allocated to third-party institutional investors, who will be identified at a later date. At this juncture, our forecasts remain unchanged pending the completion of the placement within the next three months.

The indicative price of the placement shares is yet to be known. However, it is expected to be priced based on a discount of not more than 10% from the five-day weighted average market price of TSH shares prior to the price-fixing date. Assuming an indicative issue price of RM1.73 per share, TSH’s placement is expected to raise proceeds of RM43.2 million.

Almost all the proceeds from the placement will be used for the working capital of TSH, including daily operating expenses. The placement exercise will help the group to strengthen its balance sheet by improving its net gearing from 0.93 times to 0.86 times.

The proposed placement is expected to have a minimal dilutive effect on TSH’s financial year 2017 (FY17) numbers. Based on the enlarged share capital of 1.38 billion shares, our forecast FY17-FY19 earnings per share (EPS) will be diluted by approximately 3% to 8.8 sen to 9.4 sen from 9.1 sen to 9.7 sen. 

Consequently, our TP will also be adjusted from RM1.87 to RM1.82. We are leaving our estimates unchanged at this juncture, however.

We are maintaining our fair value at RM1.87 based on 20 times FY18 EPS for now but will review it upon completion of the private placement within the next three months. — PublicInvest Research, July 10