MAINBOARD-listed mDR' s massive rights issue will go " ex" on Friday, meaning only those who hold the shares as at the close of Thursday' s market session will be entitled to apply for the rights shares and warrants on June 11.

Massive would be an understatement: the mainboard-listed company is putting up some 25 billion rights shares and 225.8 billion warrants.

The 2-for-1 rights issue includes rights shares priced at 0.188 Singapore cents, which is a discount of 38 per cent on the shares, currently trading at 0.3 cents.

Each share comes with nine free warrants.

 

Three are exercisable at 0.1 cent, another three at 0.11 cents, while the final three at " above-water" level of 0.7 cent. The warrants expire over six, 18 and 36 months respectively. Just taking the shares and the first two tranches of the warrants, shareholders effectively pay 0.1168 cents per right tranche, post conversion.

Executive chairman Edward Lee Ewe Ming has given the Singapore Exchange his undertaking to buy S$10 million worth of the rights issue. He says he will pump in another S$32 million to convert his warrants. This could increase his stake significantly above his current holding of 21 per cent, depending on the level of subscription. Mr Lee originally bought into mDR in May 2017 at an average price of 0.6 cents per share or S$18 million investment in total.

mDR CEO Frankie Ong plans to cough up some S$4 million for his rights entitlements.

If successful, the issue will boost mDR' s balance sheet by some S$200 million. Add to that the S$37 million the company already has on its balance sheet, and its options open up far beyond just running a chain of mobile phone distribution and repair shops.

Indeed, Mr Lee says he wants to expand into property and investments.

" The company has always been profitable, but our income is largely from our sales and service of phones and white goods, and a printing business. There is a lot more we can do with a stronger and bigger balance sheet," he said. He reckons his 20-year track record in property and investments will enable him to lead mDR in new directions.

At the company' s AGM last month, Mr Lee unveiled plans to strengthen the company' s financial position, diversify its businesses and transform it into a larger company with " higher enterprise value, higher profitability and increased visibility to fund managers, investors, liquidity and exposure for strong corporate brand value."

Among his proposals are trading and investing directly in financial instruments, Reits, private equity funds and providing financing to growing corporate entities. By taking on bank loans and gearing up the balance sheet, he reckons mDR will have enough firepower to get into some serious property plays.

Potential for growth

Indeed, the potential is there.

Re-born after a lengthy restructuring of its troubled predecessor ACCS, mDR posted net profit of some S$4.2 million last year, compared to S$3.1 million a year earlier. Cashflow was S$4.3 million, and it paid out a dividend of S$1.5 million, working out to around 4 per cent at current price. Not too bad for a penny stock.

Even some analysts seem upbeat. Liu Jinshu of NRA Capital reckons the company is headed for more steady performance and higher dividends with new management.

" The proposed new businesses in investments and property will expose the group to a wider set of opportunities to raise profitability," he noted in an April 24 report.

Asked about the wariness among some in the market about the huge post-rights share base and the potential for consolidation, Mr Lee had this to say: " I have no plans for consolidation unless there is economic gain to be had. Consolidation for the sake of consolidation is a losing proposition, and simply depresses the share price. Having a big base and good value gives us better profile."

The vision that the young and energetic Mr Lee paints for his company is indeed promising and, to be fair, opportunities are there to be had. But whether weary and wary shareholders are ready to buy into this vision remains to be seen. Investors have until Thursday evening to decide.