Rewarding shareholders with free warrants
We are neutral on ECW’s latest corporate exercise. The proposed 1-for-5 bonus issue of warrants (?589m), which is slated to be completed by 1H22 after the expiring of its existing warrants (525m), will likely dilute our RNAV estimate by 9-10% assuming an exercise price of MYR1/warrant. We maintain our earnings forecasts and MYR0.93 TP (on an unchanged 0.6x FY22 PBV) for now pending more information. Reiterate HOLD.
Proposed bonus issue of warrants
ECW has proposed to undertake a bonus issue of warrants on the basis of one (1) new warrant for every five (5) existing ECW shares after its existing warrants (525m at MYR2.08 exercise price; out-of-the money)
expire on 25 Mar 2022. This would involve an issuance of 589m-694m new warrants. Exercise price of the new warrants and entitlement date will be announced later after the expiry of the existing warrants. The
corporate exercise is slated to be completed by 1H22.
Rationale for the corporate exercise
The proposed bonus issue of warrants (?589m) is meant to reward its existing shareholders since its existing warrants (2015/2022) are out-ofthe money and are unlikely to be converted, we believe. Apart from that, the proposed bonus issue of warrants will strengthen ECW’s financials as the proceeds raised from the exercise of the new warrants can be used as working capital.
Potential dilution to our RNAV estimate
Assuming an exercise price of MYR1 for the new warrant and no exercise of the existing warrants (which will be expired on 25 Mar 2022), we expect the full conversion of the new warrants to dilute our RNAV estimate by 9-10%. We maintain our earnings forecasts, MYR0.93 TP and MYR2.31 RNAV/sh pending further information from ECW. ECW will now focus on enhancing value with the aim of improving profitability by introducing products with higher margins on the increasing maturity of its landbank and projects. It has set a MYR3.5b sales target for FY22.