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PETALING JAYA (April 16, 2013): Non-bank financial institution Aeon Credit Service (M) Bhd is expected to seek clearance from its board of directors at a meeting on Thursday for a capital raising exercise via a rights issue as well as to undertake a bonus issue to reward its shareholders, according to sources close to the situation.
The company is due to release its full-year results for the financial year ended Feb 20, 2013 (FY13) on the same day.
Analysts told SunBiz they are not surprised by Aeon Credit's proposed cash-call as management has indicated its plan to raise the company's capital base for a while now.
"The main purpose of the equity raising is to boost its capital adequacy ratio to 25% from 18% now, which is nearing Bank Negara Malaysia's minimum level of 16%," said an analyst at a local research firm.
"Aeon Credit may also raise debt to fund future growth. In its annual report, the company had said it would be comfortable with a gearing ratio of 3-5 times and it is now less than 4 times," he added.
A Kenanga Research analyst said the rights issue will support Aeon Credit's loan growth plans for the next two to three years, while the bonus issue will help to improve the stock's liquidity and attract more retail participation.
He noted while the rights issue may result in a dilution of Aeon Credit's share value, the stock will remain attractive to investors post the exercise due to its healthy financial position and sound profitability, and a downward adjustment from its existing high share price.
Aeon Credit closed up 8 sen at RM14.32 yesterday, with 96,700 shares traded.
In a report dated April 12, 2013, HwangDBS Vickers Research Sdn Bhd said a capital call by Aeon Credit is probable since its capital ratio has fallen to 19% in November 2012 and it has always kept a higher buffer of above 20% than Bank Negara's 16% requirement.
"We are positive on the potential fund raising as this will shore up its balance sheet to support future growth, while the enlarged share base could improve trading liquidity," it said.
The research firm also sees the company raising debt to fund growth and refinance some of its medium-term notes which are expiring in the next 12 months, estimated to be RM400 million.
"In our scenario analysis, we assume Aeon Credit could do a rights issue on the basis of 1-for-9 at an indicative issue price of RM12.90 (based on 10% discount to a theoretical ex-rights price of RM14.30), and raise RM210 million to bring its capital ratio to 25%.
"We estimate the enlarged share base (+11%) would dilute earnings per share and return on equity by 5% and 7 percentage points respectively in FY14," it said.
HwangDBS is expecting Aeon Credit to deliver record net profit of RM129 million in FY13, up 35% from a year earlier, with the loan book growing 54% to RM2.3 billion.
"The key drivers remain personal loans and vehicle easy payments as Aeon Credit fills the financing needs of customers in the low to middle income segment," it said, maintaining a "hold" call on the stock with a RM16.10 target price.