(BUY, S$0.74, TP S$0.99)
EYS has signed a non-binding term sheet for the proposed issue of an unsecured S$25m notes due 2016 and 22m warrants on the basis of 1:1 at an exercise price which has yet to be determined but would be set at a minimum of S$0.86p/share. The issue is expected to raise net proceeds of S$24.3m which will be used mainly to fund its more aggressive expansion into China where it currently has four outlets in Guangzhou and intends to have 10-12 by year end. We view this move positively as China holds great potential. The potential dilution from the exercise of the warrants is minimal at 5% and upon conversion, would further raise another S$18-19m. Re-iterate BUY and TP of S$0.99, pegged at an unchanged 15x FY12F earnings.
Details on S$25m notes. The proposed S$25m principal notes due 2016 will be issued in denominations of S$200,000 each and mature 60 months (five years) from date of issue, paying an interest semi-annually: a) 3% p.a. up to the third year of issue and thereafter b) 4.5% p.a. up to maturity. Note holders have the option of a put option on the third year of issue.
Details on 22m warrants. The 22m warrants are exercisable within five years from the date of issue. The exercise has yet to be determined but will subject to a minimum of S$0.86 p/share, representing a premium of 18% to the weighted average price of S$0.73 on 3Oct11.
S$25m to fund China expansion. The Group intends to use the proceeds from the proposed issue to: a) fund business expansion into China and other countries in the region (S$10m), b) fund acquisitions of or investments in commercial real estate related to Group’s operations (S$10m) and c) remaining for working capital and general business purposes.
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