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TRANSformative Impact of Rights Issue

As the days tick down to June, we edge closer to the pivotal moment of TPMA's scheduled rights issue next month.

In this sales notes, I want to revisit the various implications that may arise from this significant corporate action.

TPMA plans to issue 874 mn new shares, representing 25% of the total shares outstanding post-issuance. From this issuance of new shares, TPMA anticipates raising up to USD 26 mn.

This capital is earmarked for a significant acquisition: purchasing a 65% stake in Bahtera Energi Samudera Tuah (BEST), a strategic move aimed at expanding its portfolio and enhancing operational efficiency.

Once acquired, it is projected that there will be a substantial surge in capacity and financial performance.

We expect this acquisition to not only double the ship capacity of BEST to match that of TPMA but also to align the revenue streams and margins of both companies.

Source: Sucor Research

This alignment also extends to the level of debt, reflecting effective consolidation and stable financial management.

Following the issuance of new shares, TPMA is expected to quickly begin generating strong earnings. Revenue is projected to increase with a CAGR of 33% from 2023 to 2026.

Source: Sucor Research

This represents a dramatic improvement compared to previous projections of just a 15% CAGR, driven by a substantial increase in the reinvestment rate from 33% to 48%.

Our analyst expects that the NOPLAT will achieve a 41% CAGR over the next three years, a clear indication that TPMA is on a robust growth trajectory.

Source: Sucor Research

Furthermore, EPS is also projected to grow at a CAGR of 20% over the next three years, compared to the estimated growth in EPS of 13% CAGR had the rights issue not been executed.

Following the strategic move of the rights issue, there will be a significant change in the company's capital structure. 

From 2024 to 2025, a crucial transformation is expected to occur which has the potential to strengthen the financial foundation and enhance the company's capacity to generate added value for shareholders.

Let's discuss the concept of net gearing. Currently, the company operates with zero net debt, reflecting a very conservative financial condition with a net gearing ratio of zero.

However, in the new financial strategy, there is a plan to slightly increase the net gearing to 0.1 during the 2024–2025 period. This change indicates a strategic move towards utilizing debt as a tool to accelerate growth and expansion.

Source: Sucor Research

Despite the projected increase in debt, the interest coverage ratio is expected to remain exceptionally strong, above 22x. This controlled approach to debt not only optimizes the company's financial structure but also supports larger expansion efforts, such as acquisitions or new investments.

Source: Sucor Research

One of the most important indicators in assessing management effectiveness is the ROE. Currently, the company's ROE stands at 21%. 

After the rights issue, with a more dynamic capital structure, the ROE is projected to surge to 28% by 2025. This increase is also accompanied by a decrease in the PE ratio.

Source: Sucor Research

Currently, the company's PE ratio is in the range of 4.5-4.2x. However, with the projected profit increase from the rights issue, this ratio is expected to drop to between 3.7-3.4x in 2024-2025. Indeed, this makes the company's stock more interesting.

Post-rights issue, the adjusted stock price is expected to see a potential increase of 70%, with the intrinsic value of the stock projected to reach IDR 1,050 per share by 2025.

Source: Sucor Research

With this acquisition, TPMA offers a lower PE ratio, improved ROE, and significant stock price growth potential. This scenario presents a very interesting opportunity for investors looking for a balanced blend of value, growth, and income.


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