JP Morgan Initiates Inari Amertron

Being a huge bull of Inari Amertron we saw this downgrade and ponder. We still stay put that the upcoming release results on the last month of August isn’t going to be one that is going to be compelling.

We blame the MYR strength during the months before election for this. We expect results to see a decline as other makers of equipment see a fall in shipments over the same period of time.

Recommend to take profit and collect after the results are out!

Meanwhile, have a quick review all over again with this initiation report…

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OWG – Making Profits on Warrant

We inbox our followers this write up last week.

On 6th August 2018, Only World Group (OWG) announced a bonus issue of free warrants and immediately we look at the terms in the pdf file attached along with the announcement.

We found out that this scenario is somewhat similar to CCK Consolidated Holdings where a bonus issue on warrants were given out in the 2nd half of the year. The difference is that there weren’t any subdivision of shares for OWG.

The rationale of a buy call closely relates to how the share price would move prior to the announcement and the value of the warrants issued. The free warrants would be the major component that make or break this trade.

First, let us study the case for CCK.

Case Study: CCK Consolidated

On 11 April 2018, CCK proposed a subdivision of one to two shares and for every two subdivided shares, a free warrant would be issued.

The details are as follows: –

Announcement of CCK free warrants date 11 April 2018
Announcement of CCK free warrants info (Further info) 30 May 2018
Warrants ex-date 11 June 2018
Warrants entitlement date 13 June 2018
Warrants exercise price RM 0.90
Mother share price RM 0.89

The closing price a day before Exercise Date sees CCK trading at RM2.00. (8th June 2018)

On Ex-Date (11 June 2018), we see the prices adjust for CCK from RM 2.00 to RM0.955 to account for the change in number of shares and the free warrant.

The subdivision puts, CCK at RM 1.00 per share while the free warrants adjusted the price lower to RM 0.955. This meant that the theoretical value for the warrant sits at RM 0.09.

Here’s a illustration of what happened

Closing Price (8th June 2018) RM 2.00
Subdivision 1 to 2
Theoretical Price Per Share RM 1.00
But… Share Price after Ex-Date

(11 June 2018)

RM 0.955
Difference RM 0.045
2 Shares for 1 Warrant
1 Warrant Theoretically Worth RM 0.09

Close to two weeks later, the warrant opened trading at RM 0.205 with a high of RM 0.305. This reflects that it is much higher than the theoretical reference price of RM 0.09.

For every 10,000 warrants owned, that translates into RM 1,150.00 worth of profits just by unlocking the value of the free warrant.

Strategy on OWG This Time Around

Looking towards CCK as reference, the strategy this time around is to buy OWG on weakness within this period and hold on to it until the exercise date for free warrants.

We expect more announcements to be made such as confirmation by Bursa’s end on approval to this round’s bonus issue. Announcements such as the ex-date and entitlement date of the free warrants would be announced as well in the coming weeks.

The chart below shows the movement for CCK from the announcement date where the share price peaked on the day it went Ex.

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Indeed, the rise in such a short period of time is massive and we expect the same goes for OWG this time around.

It doesn’t really matter if the warrant’s exercise price is higher or lower than the mother share. The idea here is that the warrant would always trade out of the money with high levels of premium since the conversion is roughly 5 – 6 years later. It also makes complete sense for the company to price their perceived value higher in order to impress the shareholders after those warrants get listed.

Bear in mind that timing is important in this trade, on ex-date of the free warrants, we shall find a good price to sell the mother shares or immediately sell to the buyer at any quoted price at 9 am.

As for the entitled free warrants, as soon as the new warrants are listed on the board, find a good price to sell it and you shall be able to pocket in extra money without cost to sell it.

Above all, we wish to stress that this is not holy grail or sure-profit way, as the solid fundamental reason for share price to go up still depends on the growth of the business to generate more earnings or particularly the market condition in the coming weeks.

We are giving out this as we felt that we could mirror our trade once again given that the scenario proves to be almost similar. We act based on the logical reasoning behind this corporate announcement.

Conclusion

The idea here is that we are expecting OWG to behave like CCK in the coming weeks leading to ex-date for the bonus issue for warrants. The initial reaction already shown that the market likes the free warrant and OWG spiked 15% after the announcement was made.

It is possible that we see a rapid rise in price when the more announcements related to the bonus issue gets posted. But bear in mind that the goal is to profit the most from the free warrants.

 

CIMB on Bumi Armada

It’s been awhile since we hear about this company and the stock price remained stagnant for the time being. Oil is back at $70 and it seems wise to start looking at laggers like this.

For the time being, we still fear that a rights issue can be proposed by Armada to repay some of its debts. But it has been awhile since these talks took place. Have a look at how CIMB values the company based on their assets and their revenue generation.

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In referencing to CIMB we think that it is worth buying as well at this price. Limit the cut loss point and we should see the stock price rising from where it is now. There’s a strong support at RM 0.70. Profit take anything above RM 0.80.

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CIMB on Malaysian Banks ending July 2018

To start things off, bank loans continue to see growth except for the residential loans for obvious reasons like affordability and fear of higher interest rates coming soon. Up till July 2018, bank loans recorded solid growth.

1According to CIMB, the 2nd half for this year would be slow compared to the first. We believe mortgages to slowdown further and hire purchase to return to normal after the Sales Tax implementation on cars comes into effect.

Download the report below and have a look!

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Pentamaster – Take Profit

If you’ve recalled our previous post recommending Pentamaster here. This is our recommendation to close the trade for now.

Our previous buy recommendation at RM 2.24 versus current gains RM 2.91, that’s a whopping 30% gain in less than 3 months.

Our view still stays with what we wrote earlier.

We are not confident with the upcoming report as we believe the US dollars from the month of Jan 2018 to Mar 2018 would work negatively towards the company’s earnings report. – 22nd May 2018 (Pentamaster – KWAP Entry a Good Sign)

Sell nearing to next quarter’s report (the last week of August). Above RM 3.00? Yes this is possible…

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All Your SST Related Info Here

CIMB posted a brief summary of the SST 2.0 which would be replacing the GST. Although the plans aren’t complete at the moment, we should expect the tax system to be the best outcome for the Rakyat.

Take for example taxes on cars not going back to SST which would inflate the prices, a sales tax of 6% on the end would normalize it to GST prices.

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Suggest Take Profit for Malaysian Market

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The KLCI shot directly up from 1,660 and we think that the recent volume could not justify the current rise. Other factors such as an over expanded MACD which would normalize once the range of gains decline on day to day basis.

The market sees passive selling from foreign funds when the ringgit weakened against the USD breaching RM 4 to the dollar earlier last month.

As Ringgit stabilized the selling stopped and sees some buybacks changing hands to local funds. Problem is the amount of buying in terms of volume remain weak.

We suggest you take profit on shares at target KLCI of 1,758.

Previously bought shares nearing 1,660 on the index could be shifted back to cash for the time being. Our recommendation earlier CIMB already saw a 4.5% gain from our target buy of RM 5.50.

You can de-risk index related counters and buy them back when the market dips again.

In the mean time, the 100 point rise seems un-natural and likely would see a correction underway.

 

Revenue Group 37% Upside from Listing

We did not cover Revenue Group on our IPO Research but decided to subscribe the very last-minute realizing how fundamentally strong the company is. It was announced that the IPO offering was oversubscribed 11 times which make us feel that our chances of getting it had been lowered by a lot.

The opening price would likely be positive on opening day being an oversubscribed IPO but the story continues on asking which price to target for continuous accumulation.

A Brief History

Revenue Group is an back end electronics payment provider where they had been a part of this industry even before the rise of the word ‘Fintech’. According to their IPO Prospectus, AmBank had been their longest financial institution customer since 2004 and the list goes on opting for their services till date.

One thing for sure is that this isn’t a so called modern Internet based fly by night company. The integrity of their systems and credibility of their services plays a huge role in getting more and more customers to adopt their services.

The biggest name so far is China’s UnionPay services which opens up the market for them. China is the biggest market and with the number of Chinese people overseas, UnionPay had been the doorway to RMB based transactions and clearing overseas.

Taobao listed RevPay as one of their partners in their site.

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Upcoming Development

With UnionPay services intact, this round’s IPO proceeds will lead the company to frontier markets of Cambodia and Myanmar for growth. Both very close to China and both very under-developed markets especially for online payments will provide a good prospect for Revenue Group’s growth.

Providing these services, it is best to be the market leader rather than 2nd in place because it is pretty clear that these types of companies naturally grow bigger and bigger due to economies of scale. The same infrastructure for services could be replicated easily with small modifications for each unique customer thus, economies of scale could be achieved easily.

This is why front-line services providers in the online transaction and payment industry grows bigger every year. In fact, at the end of the day, bigger actually means higher credibility similar to banks.

Fundamentals

Consistency over the years were shown in terms of profit and loss. The company registered strong margins for gross and even after tax. The revenue growth had been smooth as well and all that proves that the business structure had been successful in Malaysia.

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With a strong base locally, the company could undertake new investments into frontier markets Cambodia and Myanmar. Any kinks and bumps along the path of expansion could be buffered with their strong performance locally and possibly seize a few more customer’s in Malaysia along the way.

We think that at times, an IPO could be a marketing campaign for a company where in this case, awareness towards Revenue Group had been created through this IPO. We now know who’s behind those transaction systems. Brand image improves and being a highly known brand automatically improves their credibility. Which points back to the most important thing for provider of these services.

Indeed, the money raised could have been done through private placements where Revenue Group could still be a Sdn Bhd but the effect of listing improves the awareness of the public somewhat similar to Alibaba’s re-listing/US listing not long ago. Alibaba renewed their presence in the world and gain the awareness from the US side ditching Hong Kong listing where they delisted from there earlier.

Valuations

We think that based what’s written on the prospectus, the Post-IPO market capitalization would put the company’s value at RM 82 million.

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Although not the best to compare with Revenue Group, we chose Manage Pay (MPAY) as reference and the company is currently valued at RM 113 million. But sadly, MPAY isn’t a performer in terms of profitability. The firm started to make losses and eventually stressed the balance sheet acquiring retained losses as reported in the latest quarter.

Our conservative estimate puts the company’s valuation is only RM 100 million. Meaning we suggest that IPO pricing of RM 0.37 would see a RM 0.45 listing price or a gain of 20% from listing.

We wouldn’t be surprised if Revenue Group trades at a market capitalization of RM 113 million similar to MPAY’s. That would see the share price trading at RM 0.50 per piece or a 37% gain!

Listing Date

Our target buy is to collect on weakness at market capitalization lower than RM 100 million (maybe closer to RM 90 million side). On listing date, if the opening price is way up above 20%, we would take profit first and collect more when the market calms.

That strategy depends on how many shares would be allocated as well. With 11 times oversubscribe, we felt that only 30% of total subscription would be fulfilled.

Would follow up when it’s closer to listing date. Congratulations to those who subscribe, this company is rare to come by for the Malaysian market.

NovaMSC – Singapore’s very own MYEG?

NovaMSC could be seen trading among the top 5 in terms of volume day after day on the Malaysian market. The stock almost doubled in 1 month propelled by order book replenishment and a sudden explosion in contracts received over these periods.

The stock wasn’t covered under CIMB’s Research team but getting as hot as it is now, they too decided to publish a short introduction to the company.

Do you think you should have a piece of this? Have a look at their latest report!

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