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Thursday, May 28, 2009
Golden Agri-Resources Ltd - Rights issue to fund future growth
Golden Agri has proposed a fully underwritten 17-for-100 rights issue with free detachable warrants at S$0.18/share. We are not surprised as Golden Agri flagged to the market two weeks ago that it was mulling a rights issue. What was new were the two free detachable warrants for every five rights shares subscribed which would be EPS-dilutive if and when the warrants are in-the-money. We estimate that the rights will dilute our FY10 EPS forecast for Golden Agri by 12%. Following the removal of uncertainties surrounding this, we have returned our forward P/E target to 12x from 11x. Factoring this in and the dilution from the rights issue, we arrive at a post-rights target price of S$0.37. Our new cum-rights target price is S$0.41, up from our previous target of S$0.39. Maintain Neutral as the group's attractive valuations relative to regional peers are offset by a potential share overhang from the rights issue.
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