Thursday 28 Mar 2024
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JOHN Chia Sin Tet, chairman and managing director of Unisem (M) Bhd, has placed out 15 million shares or a 2.16% block to an unnamed institutional investor. His vehicle, Jayvest Holdings Sdn Bhd, intends to utilise the proceeds to convert its warrants into shares “within the next few weeks”.

According to stock market data, Unisem (fundamental: 1.25; valuation: 0.60) saw 15 million shares change hands on July 10 for RM34.35 million in total or RM2.29 apiece — a discount of 2.1% to 2.5% to the RM2.34 and RM2.35 apiece they fetched on the open market.

The proceeds are enough to convert 15.76 million of Unisem-WA, Unisem’s company-issued warrant, which has a RM2.18 strike price, one-for-one conversion ratio and closed at 16 sen last Tuesday.

As at March 6, Jayvest had 15.36 million warrants (9.12% of the 168.47 million warrants issued in total), according to Unisem’s 2014 annual report. Chia, who had a 26.3% stake in Unisem, also had about 10.38 million warrants.

Filings show Chia converting 126,800 warrants on July 9 and one million warrants on June 30. Should others follow suit or should they sell the warrants while they can?

It should be noted that Unisem-WA will expire in a month’s time on Aug 24, so the value of the warrants will diminish quickly. Since early May, Unisem’s share base has increased from 674.2 million to 695.2 million, possibly due to new shares issued from warrant conversions.

Analysts are largely positive about Unisem with eight “buy” calls versus two “hold” calls. Target prices range from Kenanga Research’s RM2.40 apiece to Affin Hwang Capital Research’s RM3.92 apiece, averaging at RM2.86.

unisem-wa_cap44_1076_theedgemarketsWith Unisem closing at RM2.35 apiece last Tuesday, there is limited upside to Kenanga’s RM2.40 target price. But for warrant holders, forking out RM2.18 apiece may be worthwhile if there is at least a 10% upside to reach Kenanga’s target price. The research house remains overweight on the technology sector on a healthy global industry outlook and stronger US dollar against the ringgit benefiting export-oriented semiconductor companies.

Paying RM2.18 apiece to convert Unisem-WA could lead to a return of 25.7% if MIDF Research’s RM2.74 target price (17 times FY2016 earnings) is achievable.

Nonetheless, if all of the warrants are converted, Unisem’s share base would expand by 24% to about 843 million shares. That could dilute MIDF’s projected FY2016 earnings of RM108.3 million or 16.1 sen per share to 12.54 sen per share, which would imply a RM2.13 target price at 17 times multiple.

Meanwhile, Unisem’s net asset and business could benefit from up to RM366 million cash received from the full warrant conversion. Its net assets stood at RM1.03 billion or RM1.53 apiece as at end-2014.

This article first appeared in Capital, The Edge Malaysia Weekly, on July 20 - 26, 2015.

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