Is Right Issue Worth subscribing for YUNKONG ?

A little background of Yung Kong :-

Yung Kong Galvanising Industries Berhad engages in the manufacture and sale of galvanized and coated steel products in Malaysia. The company, through its subsidiaries, markets and sells flat steel products, and other building and construction materials; and manufactures and sells furniture hardware and accessories. Yung Kong Galvanising Industries was founded in 1977 and is headquartered in Sarawak, Malaysia.

Yung Kong Galvanising Industries Bhd reported earnings results for the first quarter ended March 31, 2008. The company has registered first quarter pre-tax profit of MYR 6.611 million ($2.1 million), an improvement of 381.9% year-on-year thanks to the surge in steel prices. The steelmaker's revenue rose 23.3% to MYR 121.378 million for the three months ended 31 March 2008 against MYR 98.451 million for the previous corresponding period. Earnings per share rose to 6.77 sen from 1.13 sen previously.

Yeah, what was mentioned by forumer is true, why raising fund ? for a continue sound of business plan ? or paying debt ? Is the below subcription of right issue worth while ?

Renounceable rights issue of 65,178,300 Rights Shares together with 65,178,300free detachable Warrants at an issue price of RM0.50 per Rights Share (of which the first call of RM0.35 is payable in cash on application and the second callof RM0.15 is capitalised from the company’s revaluation reserve account andretained profit account) on the basis of one (1) Rights Share together with one(1) free detachable Warrant for every two (2) existing Shares (“Rights Issue with Warrants”) held at the Entitlement Date.

Lets mathematically the above by below example :-

1) Your holding of 2000 shares @ closing price of 0.64 sen = 640 X 2 = RM1280

2) Get to subscribe the right issue, you pay RM350 + RM10 (stamp duty) = RM360

3) Percentage of discount based on closing price = (0.64 - 0.35)/0.64 X 100 = 45%

4) Plus a free warrant (wonder how much is the listing price when it get listed, just assume this is bonus, since it is given free)

Looks pretty impressive to subscribe with a discount of 45% plus a free warrant but all this subject to the following :-

5) Your eventual holding is 3000 shares, that bring you an overall average price of = (1280 + 360)/3000 = 0.55sen

6) Ex-right will bring the share price adjusted to 0.55sen, if the closing is still 0.64 on 9/6/2008. Do you think at 0.55sen is still a good valuation ?

7) With additional new shares, the paid up capital increases, diluted and liquitity increases as well, these in turn will affect the EPS.

8) Now come to a more concern area, how overwelming is the subscription as mentioned by DoReMe ? If fully subscribed or a high subscription of the rights issue then YK happy and pocket the raised fund and everything stay normal...what if the underwriter has a,

9) undersubscribe shares, then a big problem arise here. They may then left no choice but to try sell the surplus new shares in the market, this will lead to a effective depression of the share price.

With the above you make the judgement. Personally, i think YUNKONG has a healthly BS and profit surge. Is normal for one to raise fund for company expansion unless a bad management has bad intention behind it but this company has been around for 30 years so i doubt it. Therefore should not be a problem subscribing the right issue with a 45% discount but anything can happen. Again this does not represent a BUY, act at you own risk. Bye, happy trading.