Jasmine International

Jasmine International Plc (JAS) 

- 1 unit of JAS-W3 for 2.04 shares of JAS 

The Board of Directors’ Meeting No. 3/2015 of JAS approved the issuance and allocation of up to 3,497 million units of JAS-W3 Warrants to the existing shareholders in proportion to their shareholding at a ratio of 2.04 ordinary shares of JAS for one unit of JAS-W3 Warrant. In this regard, the unit price of JAS-W3 Warrant is B0; the term of the warrants is five years from the issuance date; the exercise period is the last business day of each quarter (the first exercise date is the last business day of the first quarter following the issuance date of JAS-W3 Warrants). The conversion exercise ratio is one unit of JAS-W3 Warrant for one ordinary share of JAS at an exercise price of B4.30/share. JAS is going XW on June 25, 2015. 

- High dilution. New business unlikely to generate profit promptly 

It is very likely that shareholders who are given JAS-W3 Warrants will exercise their conversion rights since the first year (probably 3Q15) because the exercise price is 35% lower than the market price of JAS. Based on a conservative assumption that JAS-W3 Warrants are entirely converted in the first year, there will be a dilution effect of 33% while JAS will gain B15bn for investing in a new business, 4G mobile service, which may be a joint venture with overseas partner (under a negotiation process now), hoping to encourage JAS home internet and mobile internet use and rival an integrated service of ADVANC and TRUE. However, we have a negative view on the strategy. Since a mobile business will need massive investments for nationwide network expansion and license bidding, JAS will have high fixed expenses in early years of operation. Furthermore, the company will be able to generate add-on revenue only from its existing customers (while it has to compete with other mobile operators in the market to seek new subscribers). Accordingly, we believe JAS would face massive loss at the beginning of the business. We are likely to revise down our profit forecast when JAS’s business plan is clear. Yet, JAS is ready for the new business in terms of investments, given its net cash after JASIF establishment and increasing capital from JAS-W3 Warrants conversion. 

- Sell when price rebounds  

Earnings in the long run can be dampened by the mobile business, which is already dominated by three major players. In addition, new fair value in case that JAS-W3 Warrants are entirely converted in 2015 is B6.3. Accordingly, we downgrade our recommendation to SELL. The fair value has still not included B1.29/share theoretical value of JAS-W3 Warrants; there can be speculation in the short term. The share price may also rebound after falling sharply yesterday because JAS has explained that it would decrease its paid-up capital from 142.7 million repurchased shares and would not sell the repurchased shares to the market as concerned. Nevertheless, due to changes in fundamental factors, we recommend selling JAS when the price rebounds.