Hong Kong, May 13, 2010 (ABN Newswire) - Fufeng Group (
HKG:0546) (PINK:FFNGY) has announced it will issue Rmb-dominated convertible bonds (CBs) to raise Rmb 820mil-1bil. As the initial conversion price (HK$7.03) is below both of the current share price and our current PT of HK$6.7, there is no dilution impact on our modeled numbers at present. Our initial take on the CB issue is that it is slightly positive to the company's financials as it can lock the company's interest costs in face of a potential interest rate hike. We leave our model, rating and PT unchanged.
Share capital enlarged by 10% if fully issued and converted: Details of the CB are shown in the exhibit below. We would like to highlight: (1) the conversion price of HK$7.03 is ~20% above the current share price and 5% above our PT of HK$6.7. (2) Fufeng will pay Rmb37mil-46mil of CB interest expense (settled in US$ in cash semi-annually), but we believe that this will largely be offset by an interest saving from a lower bank borrowing. The CB coupon rate is 4.5%, lower than the company's current borrowing rate (~6%, according to management). We believe the CB can help fix the company's interest costs in face of a potential interest rate hike.
For a better understanding, we have also calculated below the potential dilution impact on the company's EPS if the CB is fully converted now. However, as both the share price and PT is below the conversion price, there should not be any dilution due to the new shares to be issued from the CB conversion.
Potential Impact
PRICE TARGET AND JUSTIFICATION:
We rate Fufeng Overweight with a PT of HK$6.7 (9.4x FY10E EPS of HK$0.72).
For the complete Fufeng Group Research Report, please refer to the following link:
http://www.abnnewswire.net/media/en/docs/62855-PJ-Mar-10-(100329).pdf
HKG:0546) (PINK:FFNGY) has announced it will issue Rmb-dominated convertible bonds (CBs) to raise Rmb 820mil-1bil. As the initial conversion price (HK$7.03) is below both of the current share price and our current PT of HK$6.7, there is no dilution impact on our modeled numbers at present. Our initial take on the CB issue is that it is slightly positive to the company's financials as it can lock the company's interest costs in face of a potential interest rate hike. We leave our model, rating and PT unchanged.Share capital enlarged by 10% if fully issued and converted: Details of the CB are shown in the exhibit below. We would like to highlight: (1) the conversion price of HK$7.03 is ~20% above the current share price and 5% above our PT of HK$6.7. (2) Fufeng will pay Rmb37mil-46mil of CB interest expense (settled in US$ in cash semi-annually), but we believe that this will largely be offset by an interest saving from a lower bank borrowing. The CB coupon rate is 4.5%, lower than the company's current borrowing rate (~6%, according to management). We believe the CB can help fix the company's interest costs in face of a potential interest rate hike.
-----------------------------------------------------------Source: Company
Gross Proceeds Rmb 820mil - Rmb 1025mil
(~US$ 120mil - US$ 150mil)
No. of new shares to be issued 132.6-165.7 mil
% Increase 8% - 10%
-----------------------------------------------------------
Annual Coupon rate (%) 4.5% (paid semi-annually)
Conversion Price (HK$) 7.03
Maturity Five years (Due Apr 2015)
CB Holder's Put Option At year 3 (1st April 2013)
CB Listing Singaopore Stock Exchange
Use of Proceeds Expansion capex, M&As, General
working capital
-----------------------------------------------------------
For a better understanding, we have also calculated below the potential dilution impact on the company's EPS if the CB is fully converted now. However, as both the share price and PT is below the conversion price, there should not be any dilution due to the new shares to be issued from the CB conversion.
Potential Impact
-----------------------------------------------------------Source: Piper Jaffray Asia Securities
Our current estimates FY10 FY11
Net Profit (Rmb mil) 1049 1531
EPS (Rmb) 0.63 0.82
Impact (if Optional bonds issued in full)
Net Profit (Rmb mil) 1,033 1,341
EPS 0.57 0.73
EPS dilution effect -10.2 -10.5
-----------------------------------------------------------
PRICE TARGET AND JUSTIFICATION:
We rate Fufeng Overweight with a PT of HK$6.7 (9.4x FY10E EPS of HK$0.72).
For the complete Fufeng Group Research Report, please refer to the following link:
http://www.abnnewswire.net/media/en/docs/62855-PJ-Mar-10-(100329).pdf
About Fufeng Group Limited
Fufeng Group Limited (US:FFNGY)(HKG:0546) is one of the leading vertically integrated manufacturers of corn-based biochemical products principally utilising fermentation technology in China, and mainly engaged in MSG related products and xanthan gum production. MSG segment includes production of MSG, glutamic acid, fertilisers, corn refined products and sweeteners. Fufeng is the largest glutamic acid manufacturer in China, and one of the top three leading xanthan gum manufacturers in the world.
Please visit the Company website for more details:
http://www.fufeng-group.com
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