No surprise. The proposals came in as no surprise given that we had mentioned in our last 16 March report that Faber was in the midst of finalizing proposals to strengthen its balance sheet, largely with regard to “legacy” accumulated losses at the company level. As we had mentioned earlier, despite the company’s willingness to pay a higher dividend payout, its ability to increase the payout ratio had been constrained by its accumulated losses at the company level. As such, the main rationale for the proposed corporate exercise is to enable Faber to beef up its capacity to raise its dividend payout and provide higher dividend returns to its shareholders.
We view the proposals positively as these would enable Faber to eventually pay a higher dividend.
Prelude to something bigger? On a net basis, upon the completion of the proposals Faber’s shareholders funds will remain unchanged given that the reduction in share capital from RM363m to RM90.7m and the cancellation of RM116m in share premiums would be offset by an increase in retained earnings to RM361.7m compared to its accumulated losses of RM25.8m prior to the exercise. With its net cash balance of around RM117.7m as at end-FY10, we do not rule out the possibility that the proposed exercise being a prelude to a potential special dividend payment to shareholders as Faber had been unable to do so previously due to its high accumulated losses.
Maintain TRADING BUY. We maintain our numbers and our TRADING BUY recommendation at an unchanged TP of RM3.02 based on SOP valuation. We still think that Faber should be able to get its existing concession renewed in view of its track record and excellent execution of the existing concession, which should provide the upward catalyst for its share price.
We view the proposals positively as these would enable Faber to eventually pay a higher dividend.
Prelude to something bigger? On a net basis, upon the completion of the proposals Faber’s shareholders funds will remain unchanged given that the reduction in share capital from RM363m to RM90.7m and the cancellation of RM116m in share premiums would be offset by an increase in retained earnings to RM361.7m compared to its accumulated losses of RM25.8m prior to the exercise. With its net cash balance of around RM117.7m as at end-FY10, we do not rule out the possibility that the proposed exercise being a prelude to a potential special dividend payment to shareholders as Faber had been unable to do so previously due to its high accumulated losses.
Maintain TRADING BUY. We maintain our numbers and our TRADING BUY recommendation at an unchanged TP of RM3.02 based on SOP valuation. We still think that Faber should be able to get its existing concession renewed in view of its track record and excellent execution of the existing concession, which should provide the upward catalyst for its share price.
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