MDR Limited - NRA Capital Research 2018-04-24: Buying Into Future Growth

MDR Limited - NRA Capital Research 2018-04-24: Buying Into Future Growth MDR LIMITED SGX: A27

MDR Limited - Buying Into Future Growth


  • mDR Limited is an established after-market service provider for mobile phones and various consumer electronic products. Its businesses are organised into four segments –
    1. After-Market Services (AMS),
    2. Distribution Management Solutions (DMS),
    3. Digital Inkjet Printing for Out-Of-Home Advertising Solutions (DPAS) and
    4. Investment.
  • The Investment segment was added in 2017.
  • mDR Limited is seeking shareholders’ approval at an EGM on 27 April 2018 to conduct a Rights-cum-Warrants Issue to raise funds in preparation for its expansion into New Businesses in Property and Investments.

New Businesses have showed results

  • Growth has been mixed for mDR’s Core Businesses. In 2017, gross profit fell by 2.1% despite revenue growth of 4.5%.
  • In May 2017, mDR appointed its Executive Chairman Mr. Edward Lee Ewe Ming to the Board and thereafter started a new Investment segment that added S$1.5m of income and led group PATMI to grow by 39.5% from S$2.9m to S$4.1m in 2017.
  • Showing confidence and commitment to shareholders, the group also raised dividends in 2017.

Rights cum Warrants Issue to fund business expansion

  • The Rights-cum-Warrants Issue will allow mDR to make scale up the New Businesses and generate higher return. In turn, the warrants allow shareholders to increase future participation at a fixed cost, thereby enhancing return from future growth.
  • One risk is that the proposed Investment mandate is extensive and may expose the group to more risks. However, mDR plans to impose higher Board oversight in investment decisions after approval has been obtained at the EGM.

Current fair value of S$46m – S$73m

  • On a fully diluted basis, we value mDR at 0.151 – 0.229 cents versus a cost of 0.129 cents, assuming the conversion of only the in-the-money Warrants. Some premium of at least 16.5% has been added to the capital raised, to reflect future excess return.
  • The Investment segment generated an annualised return of S$3m or 17.5% over invested capital in 2017, which led us to value the Investment segment today at a premium instead. Moreover, most of the funds raised will be used in the New Businesses. However, the wide bid-ask spread of 0.1 cent will limit the realization of any immediate gains.
  • The group is probably targeting investors that aim to hold their shares over the next six to 36 months. This risk can be mitigated via various corporate actions e.g. a capital reduction or a share consolidation, after several years of profit growth.

More exciting outlook with new direction

  • As the Warrants will mature over 6, 18 and 36 months from their dates of issue, we expect the management to accelerate business momentum and introduce more new developments over these timeframes and enhance value, after approval has been obtained at the EGM. In turn, participating investors will benefit from potentially higher value creation and low entry prices.
  • We do not rate mDR at this juncture due to the wide bid-ask spread and the absence of more information about future projects.

Liu Jinshu NRA Capital Research | 2018-04-24
SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.474 Same 0.474