AFFIN Bank-To Buy or Not To Buy its Rights

If you look at the price level of Affin Bank, you will notice that there is a huge price fall from its peak of RM 4.15 sometime in early February 2014. After moving in an erratic manner in February, it plunged to below RM 3.85 at the end of March. This represents a fall of 30 sen or  a serious 7.2%. In much of April, it found no traction and slipped yet to another low at RM 3.75 or another 10 sen fall, bringing the percentage loss to a loss of 9.6%.

Falling Price

By mid-May, the price of Affin has gone down to RM 3.65 and in early June, it just about straddled the RM 3.60 price level. At RM 3.60, Affin's percentage loss was 55 sen or a 13.3%. By the second week of June, it moved up slightly to RM 3.62 and RM 3.63.

Let us look at some of the reasons by the gravitational  pressure on this stock.

Investor confidence on the stock was dampened by the huge rights issue which will dilute market price when the new issue is listed. There are concerns that optimal values will not come on steam until 2017. TA Investment Bank (IB) has re-assessed the stock downwards putting it at RM 4.17 at its Top Price (TP) while Alliance IB stayed neutral with its TP at RM 4.25.

As these assessments were done two months ago,they may no longer hold true as even now the price of Affin has slumped down by another 20 sen to RM 3.63 since then (RM 3.85).

 Let's look at the rights issue.

It is now confirmed that for every 10 shares held on 12 June 2014, shareholders will get 3 rights issue at RM 2.76. That would mean a person with 1000 shares will only get 300 new shares. He will need to pay RM 828.

If the price is maintained at RM 3.65, then he may want to subscribe for an access amount of 700 shares. If he does so, then he would be paying RM 2,760 (RM 1,932 + 828= RM 2,760).

Given the dilution with another 30% new shares coming onto the market, there is  possibly a price shaving to be anticipated. It could cause the price to fell by another 30 sen.

This could mean a ex-price of  about RM 3.10-RM 3.20.

More than that could be a bonus.

PS: Ex-rights trading price of Affin today is RM 3.44.

If the price holds accordingly, after the OR has been traded then this could possibly be a benchmark for Affin ex-rights. It also represents a good opportunity for the OR to sell at a good price.

At the price of  RM 3.44 given the rights at RM 2.76, this could mean a ball-park gain of  0. 68 sen per share.