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Monday, March 27, 2017

AEONCR: Investors Rattled By Rights Issue?

Technical Update

Last Friday, AEONCR swung from a high of RM17.20 to a low of RM15.70 after it announced the proposal for a Bonus Issue of 1-for-2 plus a Rights Issue of ICULs of 2-for-1 (which may be revised to 3-for-1 in the event the bonus issue is terminated). Was the proposed Bonus & Rights Issues the reason for the sharp swing in the share price? Should we be concerned about the proposed Rights Issue? For more on the proposal Bonus & Rights Issue, go here.


Chart 1: AEONCR's intra-day chart as at Mar 24, 2017 (Source: Shareinvestor.com)

The daily chart shows that the share price is now at the intermediate uptrend line support at RM15.80.


Chart 2: AEONCR's daily chart as at Mar 24, 2017 (Source: Shareinvestor.com)

The sharp drop was preceded by a sharp rally that pushed the share price above the line connecting the peaks for the past 5 years!!


Chart 3: AEONCR's monthly chart as at Mar 24, 2017 (Source: Shareinvestor.com) 

Recent Financial Performance

For QE30/11/2016, AEONCR's net profit rose 21% q-o-q or 26% y-o-y to RM67 million while revenue rose 4% q-o-q or 14% y-o-y to RM280 million. PBT rose 24% q-o-q mainly attributable to higher operating income and lower allowance for impairment losses on receivables in the current quarter. (Note: The quarterly result was announced on December 22 last year.)


Table: AEONCR's last 8 quarterly results


Graph: AEONCR's last 38 quarterly results

Financial Position

As at 30/11/2016, AEONCR's financial position is deemed satisfactory, with adequate current ratio of 2.2x while gearing ratio maybe on the elevated side at 5.1x. The gearing ratio is definitely higher than RCECap's gearing ratio of 2.9x as at 31/12/2016. I believe the purpose of the Rights Issue of ICULs is to address investors/bankers' concern. It shall raise RM432 million for the company and in the process, bringing down the gearing ratio to 3.7x. 
 
Valuation

AEONCR (closed at RM15.98 last Friday) is now trading at a trailing PE of 9.6 times (based on last 4 quarters' EPS of 166 sen). At this PER, AEONCR is deemed fairly attractive. In addition, it pays dividend totaling 60.10 sen in the past 4 quarters; translating to a DY of 3.8%.

Conclusion

Based on satisfactory financial performance, fairly attractive valuation and positive technical outlook, AEONCR is a good stock for long-term investment. The present price weakness may present an opportunity to gain entry into this stock.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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