MFlour implementing the Rights Issue & Special Dividend

In May 2011, MFlour proposed a wide-ranging corporate exercise involving a 1-to-2 share split and thereafter a 62-sen dividend (before tax of 25%) or 46.5 sen (after tax) for each subdivided share plus a Rights Issue ('RI') of 2 RI shares c/w 1 free warrant & 1 bonus share for every 2 sub-divided shares.I have commented on it in June 2011 (here).

The corporate exercise is being carried out in two stages; the Share Split completed in January (here) and we are now in the final leg which includes the Special Dividend & the Rights Issue (here & here). I have received a few comments & emails on this. these are my thoughts on MFlour:

1. Financial Performance

Due to the increase in raw material costs, MFlour's bottom-line has peaked in QE31/12/2010. Its pre-tax profit has dropped from RM46 million in QE31/12/2010 to the range of RM20 million for the past 3 quarters. Unless the profit margin rebounds back, I do not see a recovery in the share price.


Table: MFlour's last 8 quarterly results



Chart 1: MFlour's last 23 quarterly results

2. Share Price Performance

MFlour is still in a medium-term uptrend line with support at RM3.90-4.00. I believe this support will hold for the near term.


Chart 2: MFlour's daily chart as at Mar 26, 2012 (Source: Quickcharts)

3. Valuation

MFlour (closed at RM4.44 yesterday) is now trading at a PE of 12 times (based on last 4 quarters' EPS pf 38 sen). Based on this PE, MFlour is deemed fairly valued with limited upside.

Conclusion

Based on the above, I would rate MFlour a SELL ON STRENGTH if there is any rally prior to the ex-date of the above Rights Issue cum Special Dividend.