Fund raising for acquisitions
- 1-for-9 rights issue at S$26 per share to raise US$768m
- Stronger balance sheet could pave the way for more acquisitions to boost its earnings streams
- Weak outlook for Astra International remains the key challenge for JC&C’s near-term prospects
- Upgrade to HOLD with adjusted TP of S$34.50
Rights issue to raise US$768m.
- JC&C announced a 1-for-9 rights issue (for a total of 39,523,628 shares) at an issue price of S$26 per share, which is estimated to raise net proceeds of c.US$768m.
- Majority shareholder (Jardine Strategic with a 74.43% stake) has undertaken to subscribe for its share of the rights.
- The rationale given for the rights issue is to repay loans of US$626m previously drawn down to fund its 24.9% stake in Siam City Cement in April this year, and for general corporate purposes including making strategic investments and/or acquisitions.
More acquisitions ahead?
- We estimate that the rights issue (which will be fully subscribed by parent Jardine Strategic and underwritten by underwriters) will improve the Group’s net gearing from 0.85x at end-FY14 to 0.5x by end-2015F.
- This could then allow the Group to make more acquisitions (up to US$1.6bn if we assume a net gearing of 0.8x at end-2015F) to further grow and diversify its earnings stream.
- However, given that Astra still accounts for c.90% of JC&C’s earnings and the former’s tepid outlook, we remain cautious on JC&C’s near-term prospects.
- At the same time, it would be interesting to keep an eye out for JC&C’s next acquisition(s) and the potential impact of those on the Group.
Post-rights adjusted TP of S$34.50.
- Given the continued weak outlook for Astra International and the increasing diversification of JC&C’s investment portfolio, we are widening our sum-of-parts discount for JC&C to 15%, which is its historical mean since 2007.
- As JC&C’s share price has weakened below our TP, we upgrade the stock to a HOLD.
(Paul YONG, CFA)
Source: http://www.dbsvickers.com/
