Tuesday, December 17, 2013

Keuro's call for rights (Updated)

24 Dec 2013: Keuro just received final confirmation for the concession agreement from the government.

3 Jan 2014: Shareholders have approved the rights and warrants issue.

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Rights are not for everyone. I tend not to like rights issuance except for this one. Usually, whenever a company is seeking to raise funds, only then it will call for rights. Strong companies usually do not ask for money. They return money to you. Except for some cases like the recent BIMB call, which was raising funds to pick up the remaining shares it does not own in Bank Islam and Keuro (which is deprived of cash) raising money for WCE.

As mentioned in my previous posts, Kumpulan Europlus is raising funds through rights issue (for mainly the WCE project) and as follows are the basic information about the rights issue:

  • Rights 3 for 4 with attached warrants of 1 for 2 for every rights subscribed. This basically means that for every 4 Keuro shares that you own, you will have the right to subscribe for 3 rights. On top of the the rights, you will get 1 warrant for every 2 rights (which acts as sweetener) for free;
  • Profile of the warrants - take note that the exercise period is only for 2 years from the date of issuance of the warrants - very unusual as normally warrants are for 5 years to 10 years for some. In this case, it is I believe due to the company needing to raise funds through the warrants for the West Coast Expressway project, hence they are indirectly requiring the warrant holders to subscribe within the 2 years assuming it is in the money;
  • Current share price of Keuro at RM1.20, assuming a discount of 10% is applied to the rights, it will probably be pricing the rights at around RM1.08.
One has to be careful about rights as if you do not intend to subscribe, you should take note of what you can do:
  • Sell the shares as if you do not pick the rights which usually is offered at a lower price than the share price. Note that the share price will adjust after the ex-date of the rights, which means you will lose out if you do not intend to subscribe; or
  • nowadays, you can have the option to sell your rights - usually for a limited time. What basically this offers is that through your CDS statement you will know that you will have a period where your options for rights can be sold to the market - they will probably be termed as Keuro-OR. This option is presented if you do not intend to pick up the rights but yet want to hold on to the shares.
Keuro is having an EGM to approve the rights issuance and warrants on 3 January 2014. Assuming it is approved during the EGM, do expect to prepare for your subscription by end of the month of January.

25 comments:

山下聖人 said...

Hi felicity, what makes you to have such committed conviction on this. we not even seen the road building yet.....and by the times, there might be bullet train, and also economic crisis

felicity said...

Economic crisis - toll roads companies will act as a good defensive counter.
Bullet train - different target market and going to be very expensive - a 400km - 600km trip in Europe costs between Euro90 to Euro 220
Malaysia need this new road as NSE is already congested - unfortunately it is tolled for users
This road will improve accessibility at the coastal line of West Coast Malaysia.
South Klang Valley is already being developed right down to Banting. You will need connection.

Benson said...

Hi Felicity, mind to ask you about parkson, will u average down your price? Thx~

felicity said...

Parkson is worrying for its results over the last few quarters. Their profits dwindled and yet competition is getting intense in China and Malaysia. Vietnam and Indonesia is having slow pick up.

Additionally, it has temporarily closed down some outlets for renovation. That affects its business as well.

I would think the current price looks attractive due to the correction, but I would just not invest for now but to look at its progress.

Winnfield said...

Felicity, being a shareholder of Keuro as well, I would like to ask about your opinion on several issues pertaining to the company.

First, the long gestation period of the concession. I think Keuro will bleed red for several years (possibly more than five) even after the completion of the highway as you need some time for the public utilization rate to pick up. If you look at most of the highway concessions today, most of them have yet to record a substantial profit which represents an optimal return on investment. My question is whether you are concerned or comfortable about the gestation period of the concession because Keuro may not show true owner's earnings for many years.

Second, privilleged deal for the privilleged few. To be honest, 10% of Rimbayu project at RM 50 million is a steal. I am really glad while relieved that MWE emerges as a major shareholder next to IJM. Of course, we do not know if there will be upcoming sale of the remaining 40% stake in Rimbayu to the big guys. But how would you feel if Keuro keeps selling the Rimbayu stake at screamingly low valuations? Would you change your mind over the prospect

Third, possible risks to the implementation and completion of the project?

felicity said...

I seldom take bets which are lopsided and against me, and I think this one is not lopsided against me.
Buying Keuro is a risk where it involves completion, not getting the project, competition, long gestation etc.
I take this as an investment for the long term.

Assuming you are given an opportunity to invest into a tolled road project. Some of the details are available but not all. As a potential investor, what would you ask?

- what is the return over the long term;
- competitors;
- how much are the other valued at;
- who is building the road?;
- is this the road which the public needs;
- what is the traffic going to be like?

For WCE, the most relevant comparison is PLUS. It took UEM some RM4 billion then to complete it. 20 years later, it was valued at RM23 billion and RM34 billion in enterprise value despite having collected toll for close to 20 years.

I do not believe WCE will get a deal so sweet as UEM but nevertheless should be good enough.

With IJM as the main contractor, and it has spent to add on to its stake, I am not that worried except for the long gestation.

Kalasou said...

For parkson! I bring some opinion here. correct me if I'm wrong.
1)Parkson in china market had many competitor, the biggest is WANDA group which whole over 80+ mall in china.
2) For 2 of this retail department store face a major issue; Internet business effect by Alibaba subsidiary taobao & tianmao(www.tmall.com). This will bring major issue in the future like 5 ~10 years.

3)I'll buy in parkson when they focus in Vietnam and Indonesia market. cuz southeast asia internet business not yet that strong compare to china.


Piny Zone said...

hi felicity, im new in share market and im holding KEURO share of 300 unit now, if im interested to subscribe to their right issue, how much do I need to come up to subscribe for it?

or maybe you can share me the calculation of it

felicity said...

HI Piny

You are entitled for 3/4 x 300 units = 225 units. the price is yet to be determined. Assuming it is at RM1.10 per unit, then should be RM1.10 x 225 = RM247.5

Big Sea said...

Felicty,

Assume the successful completion of WCE 5 years from now, what Enterprise Value do you assign to KEURO ?
Would 10 billion be a number too high [30% of PLUS] ?

felicity said...

RM5b with RM5b in debt seems like a decent number. I would be very happy with a RM10b EV

Benson said...

Hi Felicity, with current valuation of around RM700m, for RM 5B valuation, mean can up to 7 times? Thanks.

felicity said...

If Keuro is really a potential RM5b company, it should be about 5x as Keuro is raising some RM430m through rights. hence the market cap should be RM1.1b after the rights

Bn911 said...

Thanks for reply. About 5 X, how is it ?
If market cap around 1.1B after rights, mean can just up around 57% from 700M current valuation?

felicity said...

Currently, the market cap is around RM700 million. With the rights, it may rise to around RM1.1 billion.

I cannot be sure of a RM5 billion valuation but if it is RM5 billion, the value will rise from around RM1.1 b to RM5b which is almost 4x increase from the RM1.1b

goks said...

Felicity,

Need your guidance. I am holding KEURO 5K Shares at 1.21. I want to buy more before OR ex date for long term keep. In order to get rights, should you buy before today 3rd as AAGM date or will they put an ex-date before which all buying must happen.

Also, what are the next steps to subscribe for warrants?

Goks

felicity said...

Hi Goks

You will have to prepare some sum of money for subscription of rights. Assuming it is offered at RM1.10, then you will need RM4125.

The warrants will be attached to the rights at 1 for 2 rights.

My personal feeling is that taking up the rights would be better if you would like to keep for more than 5 years for example.

felicity said...

The ex-date for the rights is yet to be announced.

Bn911 said...

Hi Felicity, wondering why they keep postponing....Erm, may i ask wat it means by this 'Proposed increase in the authorised share capital of the Company from RM1,000,000,000 to RM3,000,000,000 by the creation of an additional 2,000,000,000 KEB Shares', will this dilute the value? Thanks a lot.

felicity said...

It is meant for the rights. There will be increase in shares from the rights and warrants.

Kwong meng Tan said...

I have read with great interest in KEuro after stumbling across your blog. Since then I have tried to research a little more of the stock on CIMB trade portal. Neither is there anything on rights issue nor trading of the rights; have KEuro already had its EGM pertaining to the Rights issue? Please update. Much obliged.

Kwong meng Tan said...

I have read with much interest over the posting on KEuro after stumbling across your blog. Since then I have tried to do a little research on CIMB portal. Neither is there anything on the Rights issue nor is its rights traded in BSKL. Could you please update on the Rights issue and what is the set terms? Much obliged.

felicity said...

The proposed rights is at 3 for every 4 shares held. It has yet to announce the price and yet to be offered.

Bn911 said...

Hi Felicity, let say Keuro market cap is around 4B after completion, do u think dividend of 6% per annum is achievable?

felicity said...

Possible, as it will be a concession business. It all depends on the traffic and I think that another alternative to North-South Highway is needed.