Erajaya Swasembada an Insignificant EPS dilution from MESOP issuance

Erajaya Swasembada: Insignificant EPS dilution from MESOP issuance (ERAA, Rp3,225, Buy, TP: Rp3,875)

ERAA yesterday announced a plan to issue Management and Employee Stock Options Plan (MESOP), pending shareholders approval at the upcoming EGM on May 30, 2013. Under the MESOP scheme, ERAA would conduct a non-preemptive issuance of a maximum of 20mn new shares with an exercise price of at least 90% of the average price of the last 25 trading days prior to the announcement day. The eligible employees would be given a timeline of up to 2-year (deadline on May 30, 2015) to exercise their options.

Who are eligible? The eligible employees for the MESOP include permanent employees nominated by the BoD (with BoC approval), BoC members (except for the independent commissioner), BoD members, and key employees that have been working for at least 1-year with with a minimum Assistant Manager position.

Insignificant EPS dilution at 0.7%, but sizeable cash inflow at 31% of total cash balance. Assuming that the MESOP is fully exercised today, the EPS dilution effect would be insignificant at a maximum of 0.7%, as the 20mn new shares issuance is very little as compared to the outstanding 2,900mn shares. Considering the small dilution, we think that the plan could yield some positive impact to further realign the interests of BoD and key employees with the shareholders.

We retain our Buy call. Strong new products launching would be the key catalyst to ERAA. Recent BlackBerry's announcement to introduce R5, the mid-end version of BB10, has partially answered uncertainties over the potential slowdown in ERAA's mid-to-low-end BlackBerry products, which have more than 50% volume contribution.

for Indonesia Market Summaries 17 May 2013