Libra Group announced on 26 Sept that it is  placing out  15m shares at SGD0.20  per  share  to raise  a  total  of  SGD3m.  This  would  enable it to potentially  make  acquisitions  to  further  expand  the  scale  of  its business, as well as undertake larger projects that require more capital. In  addition,  this  may  help  to  partially  fund  the  renovation  of  and payments for  its new facility. Maintain BUY, as our  TP falls  to SGD0.27 from SGD0.31 from the share dilution.  

May  target  high  net  worth  individuals  (HNWIs).  Management  hashighlighted in the past that it is keen to take on long-term partners to help fund its explosive growth. Hence, we are strongly convinced that the new shares could be placed with HNWIs, who would be in for the long haul to benefit from Libra Group's (Libra) rapid growth in the next few years.  

Net gearing decreases  to 56% from 89%.  Due to the purchase of its new  facility  in  1H14 ,  Libra's  net  gearing  surged  to  89%.  With  this placement bringing in roughly SGD2.8m net of fees, the company's net gearing may decrease substantially to 56% from 89%.

Getting  set  for  expansion.  With  50%  of  the  new  funds  targeted  for general working capital and the remainder  for potential investments and acquisitions, Libra is setting itself up to prepare for potential acquisitions of smaller private peers to help drive its rapid growth and expansion. The funds  would  also  enable  the  company  to  undertake  larger  projects  as well or partially fund the renovation of and payments for its new facility. 

Maintain BUY with a lower  TP of SGD0.27 (from SGD0.31).  We are positive  on  this  placement  as  it  could  provide  the  capital  to  fund  the company's expansion plans instead of just taking on more debt. The new shares, which represent  roughly 15% of its existing outstanding shares, would also help  improve the liquidity of the  stock. Our  new  TP slips to SGD0.27  due  to  dilution  from  the  placement  of  new  shares.  Maintain BUY, with our TP premised on a 6.1x FY14F P/E.

Source: OSK-DMG