Mitra Adiperkasa EPS dilution from the non-preemptive rights issuance

Mitra Adiperkasa: 5.3-0.7% EPS dilution from the non-preemptive rights issuance (Rp8,450, Neutral, TP: Rp7,950)

On a disclosure to IDX, Mitra Adiperkasa (MAPI) detailed its non-preemptive rights issuance plan. Total number issuance of new shares would be as much as 10% of the current outstanding shares, or amounting to 166mn of shares. The minimum exercise price is at Rp8,300/share, calculated by referring to the requirement for using the average closing prices in the last 25 trading days as the floor. MAPI would seek shareholders approval at the upcoming June 18 EGM. Execution of the rights can be done at one time or within a maximum two years period after the June 18 EGM.

Usage of proceeds. Assuming Rp8,300/share exercise price for 166mn shares, MAPI could potentially get Rp1.4tn of new capital. The official statement revealed that the money would be used to strengthen capital structure and improve trading liquidity. Given its high net gearing at 87.9% in 1Q13 (which worsen from 66.8% in 4Q12 and 46.2% in 4Q11), we think that majority of the proceeds would be used for debt repayment.

How much EPS dilution? Issuing 166mn of new shares would dilute EPS by 9.1%. In this case, PT Satya Mulia Gemilang’s stakes would be diluted from 56.0% to 50.9% and current public stakes from 44.0% to 40.0%. Assuming that all the Rp1.4tn proceeds would be used to immediately pay down debt in July 2013, we estimate interest expense savings of Rp56bn in FY13F and Rp112bn in FY14F. Net of tax, this would increase FY13F-14F NPAT by 4.1-9.2%, thus lowering EPS dilution to only 5.3% in FY13F and 0.7% in FY14F.

Maintain Neutral. We currently have a Neutral call on MAPI, given competition and costs pressures concerns. Our FY13F-14F NPAT are 2-4% lower than the street. Strengthening balance sheet position is nevertheless a positive point for MAPI, given its high 88% net gearing as of 1Q13.

for Indonesia Market Summaries 4 June 2013