ELSOFT (0090) - Elsoft Research Berhad - 1-for-5 Bonus Issue & 2-for-1 Share Split


Elsoft Research proposed to undertake a 1-for-5 bonus issue and 2-for-1 share split. In summary, the proposals will have a neutral impact on the group’s earnings, but we are positive on them as the enlargement of the group’s share base by 136.4%/144.1% under a minimum/maximum scenario will bode well for the stock’s liquidity and marketability. We maintain our Buy recommendation with an unchanged TP of RM3.75/share (RM1.56/share ex-bonus and ex-split) based on a PE multiple of 25.0x.

Proposed 1-for-5 Bonus Issue and 2-for 1 Share Split

    Elsoft Research proposed to undertake the following exercises:

(1) 1-for-5 bonus issue; and

(2) 2-for-1 share split.

    The proposed 1-for-5 bonus issue will be first undertaken on an entitlement date to be determined and this will then be followed by the 2-for-1 share split.

    Altogether, in a minimum/maximum scenario the exercise is expected to enlarge the group’s share base by 136.4%/144.1% (see Table 1) and correspondingly dilute earnings per share by 57.7%/59.0%.



    The maximum scenario assumes the exercise of all outstanding ESOS comprising 4,732,500 options which are in the money and will enlarge the group’s share base by 1.7%.

    In summary, the proposals will have a neutral impact on the group’s earnings. However, we are positive on them as an enlarged share base will bode well for the stock’s liquidity and marketability.

Valuation and Recommendation

    We maintain our Buy recommendation on Elsoft with an unchanged TP of RM3.75/share (RM1.56/share ex-bonus and ex-split) based on a PE multiple of 25.0x.

    We continue to like Elsoft for its research and development capabilities, relevant product offerings, rich margins and robust balance sheet.

    Besides, the group could potentially benefit from the heightening in trade tensions between the USA and China as manufacturers reveal interest in setting up operations in countries like Malaysia.

Source: TA Research - 29 Aug 2018

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