by S BIRRUNTHA / pic by TMR FILE
MI TECHNOVATION Bhd’s (Mi Tech) proposed private placement of up to 10% of its share capital to raise up to RM270.68 million to expand the group’s business has mixed reviews.
CGS-CIMB Securities Sdn Bhd analyst Mohd Shanaz Noor Azam stated that the exercise is still too early to assess the potential earnings impact from the proposed private placement exercise.
Mi Tech, he noted, was in discussions to explore potential acquisition and/or investment opportunities that are expected to create synergies with its existing portfolio.
“One of the potential M&A (merger and acquisition) targets is involved in semiconductor materials used for automotive semiconductor applications.
“The group said it believes this would be a complementary portfolio for its recently-acquired Accurus Scientific Co Ltd, which is involved in supplying semiconductor materials such as solder sphere.
“Overall, we think this is an exciting opportunity for Mi Tech to diversify its exposure beyond mobile devices into the automotive segment, which would have required an extended gestation period had it chosen an organic route,” he stated in a note yesterday.
Mohd Shanaz maintained his earnings forecast and “Add” rating on the stock with an unchanged target price (TP) of RM5.20 as CGS-CIMB projects a three-year core net profit (CNP) compound annual growth rate (CAGR) of 33% (versus sector CNP CAGR of 24%).
He said earnings accretive acquisitions, new equipment launches and a weaker ringgit against the US dollar are potential catalysts, while decline in semiconductor industry capital expenditure, delays in components’ lead time and lower smartphone demand are key downside risks for the company.
At its recent AGM on June 4, Mi Tech received shareholders approval to carry out the private placement exercise.
For illustrative purposes, if the placement shares are issued at an indicative price of RM3.30 per share, based on the last five days’ volume weighted average market price, the group could raise gross proceeds of up to RM271 million.
MI Tech plans to allocate RM187 million, or 69% of the proposed proceeds, for acquisitions and/or investments that will be related to the semiconductor equipment and semiconductor materials business units.
It also plans to allocate RM79 million or 29% of the proposed proceeds for working capital and to pare down borrowings related to the construction of the new manufacturing facility for Accurus Scientific China, amounting to RM15 million.
PublicInvest analyst Chong Hoe Leong was slightly taken aback by Mi Tech’s move to raise fresh equity given it recently concluded the acquisition of Taiwanese solder ball maker, Accurus Scientific.
Nevertheless, he maintained an “Outperform” recommendation on Mi Tech with a lower TP of RM5.78.
Chong said this was after revising up its share base following completion of the Accurus Scientific acquisition, which was satisfied via issuance of shares via a private placement at RM3.65 per share.
“The issuance of new shares could dilute its financial year 2021 earnings by about 17% as a 17.6% expansion in the share base will more than offset a 0.6% earnings enhancement arising from interest income (based on an interest rate assumption of 2%).
“Post-private placement, our TP will be revised down further from RM5.78 to about RM5.26 based on an enlarged share base of 902.2 million as the potential target could take up to 30 months for completion,” he wrote in a note yesterday.
Mi Tech closed 20 sen or 5.38% lower at RM3.52 yesterday, valuing the company at RM2.90 billion.