SINGAPORE (June 5): RHB is maintaining its “buy” call on Moya Holdings with a target price of 14 cents.

In a Monday report, analyst Jarick Seet says, “With lower financing costs, concession extensions and recovery of non-revenue water (NRW) to provide strong organic growth – coupled with additional accretive acquisitions in the pipeline to further boost NPAT – we remain positive on Moya and maintain ‘buy’.”

However, the analyst has slightly lowered the target price due to additional dilution from the rights issue, which is mitigated by the lowering of its finance costs after paying $68 million of its debt.

The group yesterday announced that it has launched a rights issue to raise up to $133.5 million to repay its existing loan facility and to finance its expansion.

The group is proposing to issue about 1.4 million new ordinary shares at 9.5 cents each, on the basis of 1 rights share for every 2 existing shares. This issue price represents a 0% discount to the market at the last closing price of 9.5 cents per share as at May 21.

“We think the pricing of the rights issue – which is done at market price on the date of announcement, coupled with the fact that majority shareholder Tamaris Infrastructure (Tamaris) has irrevocably undertaken to fully subscribe for its portion – shows the strong commitment and vote of confidence in Moya Holdings Asia’s outlook. This is because most rights exercises are normally done at a huge discount to benefit majority shareholders,” says Seet.

The analyst also expects another substantial shareholder – GW Redwood – to also fully subscribe its portion.

Since the rights price is trading above the current market price of 8.7 cents per share on Tuesday, the analyst reckons that minority shareholders will not be subscribing for the rights issue, as it will be cheaper to purchase additional shares in the open market.

Hence, it is expected that only 79.11% - Tamaris and GW Redwood – of the rights will be subscribed, raising about $105.3 million.

Out of the proceeds raised, $68 million will be allocated to repay existing loan facilities, which is likely to lower the group’s debt to $292 million from $360 million. This should also mean lower finance costs going forward – the latter has been a hefty drag on the firm’s profit and loss statement (P&L).

In addition, the remaining has been earmarked for potential M&As, JVs or strategic partnerships, in line with the group’s business expansion plans.

“We expect accretive M&As ahead – just like the 2017 acquisition of Acuatico – as Moya continues to consolidate its position in the Indonesian private water sector,” adds Seet.

Currently, the group is Indonesia’s water treatment player in terms of capacity, and the management aims to reach a capacity of 20,000 litres per second (lps), from its existing 13,000 lps, by end-2018, mainly through M&As and expansion.

As at 10.45am, shares in Moya are trading at 8.7 cents or 1.24 times FY19 book.