CIMC to place new H shares to certain substantial shareholders and management, including COSCO Container, Broad Ride (Hony’s subsidiary) and Promoter Holdings respectively. Total amount is 286,096,100 shares at HK$13.48 per share, representing 5.87% discount to the last closing price. Gross proceeds of HK$3,857 million will be used as working capital and for future development. EPS dilution of the placing is approximately 9.7%.
What do we think about the placing? Positive, because: 1) COSCO Group is the substantial shareholder and major customers of CIMC. The placing will enhance the partnership between the two parties, and reflect the support to CIMC from its major customers; 2) Hony Capital grabbed CIMC stake at the time when CIMC’s B share switched to HKEx. After the placing, its stake in CIMC will increase to 7.30% from 5.16%. The placing reflects its confidence and positive view on the earnings performance of the Company and the outlook of the business development; 3) Promotor Holdings is a company owned by the president of CIMC and senior managers and employees of CIMC. The placing reflects the positive view from the staff and will be an incentive for the senior management and employees.
Reiterate ‘Buy’, revise up TP to HK$20.00. Considering the implication from the placing, the fund raised, business outlook of marine engineering and CIMC Enric, land development in Qianhai and Shenzhen, as well as the EPS dilution, and the mild improvement in container manufacturing, we think the catalysts for share price increase still exist, and the earnings of CIMC will improve year by year. Reiterate investment rating of ‘Buy’, and we revise up our TP to HK$20.00, representing 6.0% discount to our FY14 NAV.