WHA Corporation

WHA Corporation Plc (WHA) 

What's news?

WHA's board meeting approved the move to acquire HEMRAJ (via Share Sale & Purchase Agreement and Voluntary Tender Offer) as well as capital increase from Right Offering (up to 351m shares at between Bt25-Bt27) and institutional loan (Up to Bt35.5bn). Additionally, there was approval for warrants to Purchase Ordinary Shares of WHA (WHA-W1) which will be issued and offered to the existing shareholders who subscribed for the RO (at a ratio of about three RO shares to one warrant, up to 117m units, 1 warrant : 1 share) with an exercise price of Bt35 and an exercisable life of five years.

Pleasant surprise

Although expected, WHA's Right Offering is a very generous one. The dilution is expected at between 25-27%, but can be made up with HEMRAJ's additional income. The approval of Bt35.5bn institutional loan will allow WHA to open up a tender offer for up to 100% of HEMRAJ's shares (HEMRAJ Market Cap at Bt4.50/share is Bt43.7bn, Bt8.8bn RO + Bt35.5bn loan = Bt44.3bn), which will reduce the number of hurdles for WHA. With the WHA-W1, we believe this will solidify WHA's support from its shareholders and does not post a great burden for WHA as at exercise price of Bt35 (PER of around 20.2x), its cost of equity will be only slightly higher than its cost of debt (4.5% 9M14).

Recommendation

We upgrade WHA to a BUY rating with target price Bt37.75 - based on 51% acquisition and RO price of Bt25.07 (but excluding warrant dilution). However on the same basis, if WHA is to acquire 100% of HEMRAJ, then we could see a valuation of Bt40.50 for WHA. We believe that at the current market price of Bt32.75, there is only upside for WHA; the planned acquisition of 51%-100% of HEMRAJ will provide a positive effect for WHA on a valuation basis (not including any business synergy to be gained for WHA). Even on an ongoing basis, with WHA's EPS at 1.73 and long term average PER of 21.7x, the implied price is Bt37.70 regardless.