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Eversendai: KYY’s proposal of right issues with free convertible warrants.

The company started operation in the UAE about 20 years ago. It started at the right time and at the right place. Abu Dhabi and Dubai have so much of money from oil that you can see huge and constant development between Abu Dhabi and Dubai.

I found out from Google that the UAE’s proven oil reserves were 97.8 billion barrels as of 2015. Abu Dhabi holds 92.2 billion barrels, followed by Dubai with 4 billion barrels, Sharjah with 1.5 billion barrels and Ras al Khaimah with 500 million barrels.

It has 7 steel fabrication factories and a shipyard in the region and employs 15,000 workers. As you can see from its latest press release that the company is getting more and more contracts and expects to complete Rm 2 billion of work per year.

The table below is showing Eversendai’s earning per share (EPS) in the last 5 quarters. Just based on the last 4 quarters, the total EPS is 12.42 sen. Eversendai closed at 98 sen today. It is selling at P/E of 98 divided by 12.42 = 7.9 which is very cheap for a growth stock.

Can you find another stock with good profit growth prospect selling at lower P/E?

That is why the share price is going higher and higher.

Its EPS for the first quarter ending 31 March 2018 is 3.41 sen. Based on the increased volume of new contracts it has received, it should be able to make more profit in this year than in last year. This complies with my share selection golden rule.

My golden rule: Among all the criteria, such as NTA, Cash flow, dividend yield etc, the most powerful catalyst to move share price is profit growth prospect. My golden rule is the company must have reported 2 consecutive quarter increasing profit and the projected P/E must be below 10. I choose P/E 10 to avoid unforeseen risk.

My proposal for right issues

I wish to take this opportunity to propose that the company issue 1 share for every 10 shares held by shareholders with a free convertible warrant. The company can fix the price of the right issue and the warrant at say 90 sen each.

Giving out free convertible warrants is like giving cash Äng Pow” to shareholders because the warrants can be sold in the open market and the price of the warrant should be at a premium because the company has very good profit growth prospect.

The total issued shares is 780 million. By issuing 78 million shares X 90 sen = Rm 70.2 million which the company will receive and another Rm 70.20 million when all the warrants are converted.

I strongly believe my proposal is a much better way to raise capital than the company tried and failed by using Macquarie Bank as a selling agent.

I am obliged to tell you that I am the 2nd largest shareholder of this company. If you decide to buy, you are doing it at your own risk.

 

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