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Inari Amertron Bhd
(Oct 23, RM2.97)
Maintain “buy” with target price (TP) at RM3.82:
Inari has finalised its rights issue pricing at RM1.50 per rights share. The free warrants attached to the rights share are priced at RM2 exercise price. We believe the proceeds raised from the rights issue could help to expand its core businesses to propel earnings growth in the medium term. Hence, we maintain “buy” and keep our TP at RM3.82 (or RM3.10 fully diluted ex-rights), implying a 41.5% upside.

The rights price of RM1.50 represents a discount of 41.6% to its theoretical ex-rights price of RM2.57, based on its last closing. At its existing share base of 602.1 million shares, we estimate that the rights issuance could raise gross proceeds of over RM110 million, of which some RM60 million will be used to set up a new plant as well as procure new equipment.

The exercise price of the warrants at RM2 implies a discount of 22.1% over Inari’s theoretical ex-rights price of RM2.57. This would entice investors to subscribe for the rights as the warrants will be issued deep in the money. Based on our calculations, Inari’s share price ex-rights and ex-warrants (given that it is deep in the money) would be adjusted to RM2.51 (from its last closing of M2.70).The pricing of both its rights issue as well as warrants were in line with the management’s previous guidance.

We continue to advise investors to subscribe for the cash call as we believe the exercise could help to fund its expansion plans and hence propel earnings growth over the medium term. — RHB Research, Oct 23

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This article first appeared in The Edge Financial Daily, on October 24, 2014.

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