Tianjin Zhongxin Pharmaceutical: Tianjin Zhongxin announced that it has placed out 29.6m new A-sharss to local investors in China at an issue price of Rmb28.28/share.
As the issue price is 220% higher than the previously-guided floor of Rmb12.83, Tianjin Zhongxin is able to raise its targeted proceeds of Rmb836.1m with a lower dilution impact on its existing shareholders. The size of placement was scaled down from 65.2m new shares to just 29.6m translating to a 4% dilution. This short-term dilution will be more than compensated by the long-term benefits, as the placement proceeds are earmarked for business expansion and efficiency enhancement projects with estimated IRRs of 15-20%.
CIMB reiterates its BUY rating with TP: US$1.68 as its S-shares are trading at 58% discount to A-shares and a 71% discount to placement price. Its 14x CY16 P/E is more compelling than its peers that are averaging 22.5x.
Potential catalysts include
1) organic earnings growth driven by increasing pharmaceutical demand in China, and
2) boost in sales and margins for Su Xiao Jiu Xin pills.