[News Analysis}: Top-up share placement for development of low carbon business
- Top-up placement of 50m shares at HK$8.40, a 12.8% discount to the previous closing price
- Net proceeds of HK$414m to be used in rooftop PV and clean energy heating projects
- Expect net debt-equity ratio to improve 10ppts to around 55% in FY22
- Current rating is HOLD with TP of HK$9.00
Tian Lun Gas announced a top-up placement of 50m share at HK$8.40, a 1.8% discount to the previous closing price. The number of shares represents <5% of the enlarged share capital. The stake of major shareholder, Zhang family, will be diluted from 58.5% to 55.6%. Net proceeds of HK$414m will be used mainly in the development of rooftop photovoltaic projects and clean energy heating services. After the placement, we estimate net debt-equity ratio will be lowered by 10ppts to around 55% in FY22.
Since the announcement of its strategic plan in the development of low carbon businesses, Tian Lun Gas has already announced three major strategic partnerships, which help the company to explore various low carbon businesses, including rooftop solar power, distributive heating services and energy storage station for EV, etc. Pilot projects are already under way. The net proceeds from the share placement will strengthen the company’s balance sheet and we expect development of these new business to accelerate.
Share price has done well and gone up almost 50% in the past four months. After the rally, valuation has gone up to around 8x FY22 PE of 5-year historical average. Given the deep discount of placement price, we expect short term pressure on share price. Our current rating is HOLD with TP of HK$9.00.