Tuesday, September 21, 2010

TAGB may be due for a re-rating

TA Global Bhd ('TAGB') is a property arm of the TA Enterprise Bhd ('TA'). It was listed in November 2009 via an Offer for Sale of RM0.50 each & a distribution to TA's shareholders (in the form of a Dividend in Specie). TA's shareholding was reduced from 100% to 58.7% after the exercise. In addition, TA holds 15.5% of TAGB Irredeemable Convertible Preference Shares ('ICPS'). On the exchange, TAGB ICPS is known TAGB-PA.

TAGB-PA has a tenor of 5 year and it's convertible to ordinary share on a 1-for-1 basis starting 2 years after its issuance (October 5, 2011). Since TAGB & TAGB-PA are exchangeable 1-for-1 within 13 months, the price differential should begin to narrow. However, the price movement in TAGB-PA over the past 2 weeks was rather fast. This sharp move could be an early indication of a re-rating of the stock, with investors in the know sweeping up the cheaper instrument (see the charts below). The re-rating coincides with the general re-rating of the property sector as well as possible buzz surrounding TAGB's latest property development, Damansara Avenue.

TAGB's financial position is very strong, with current ratio of 6 times and gearing ratio of 0.13 time as at 30/4/2010. Its financial performance for 1Q2010 (or QE30/4/2010) is unexciting, with net profit of RM18.6 million recorded on the back of a turnover of RM91.5 million. 1Q2010 EPS was only 0.39 sen.


Chart 1: TAGB-PA's daily chart as at Sept 20, 2010 (Source: Quickcharts)



Chart 2: TAGB's daily chart as at Sept 20, 2010 (Source: Quickcharts)

Based on the re-rating of the property sector in general & possibly TAGB in particular, the stock could be a good medium-term investment. For those with longer time horizon, you may consider the cheaper entry via TAGB-PA.
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9 comments:

  1. MaxWealth88Tuesday, September 21, 2010 11:11:00 AM

    hi alex,

    thanks for the tips. is the conversion automatic or need to fill a form? whats the process?

    thanks
    maxwealth88

    ReplyDelete
  2. MasonTuesday, September 21, 2010 12:11:00 PM

    Dear Alex

    I have read your previous blog about "Rubber stock" where TOPGLOV and some other stocks are on the down tread and I realize that this is happening.

    However, I notice that the price for TOPGLOV is kind of low (5.55 at 12pm). Base on the PE and EPS, this stock deserve a higher price. Can you comment on is this.

    Thank you very much.

    Mason

    ReplyDelete
  3. UnknownTuesday, September 21, 2010 2:37:00 PM

    Hi Alex, i have this TAGB. Been holding for year plus and still losing. i have 40000 shares at average 0.45.

    What is the target price u assume ?

    Thanks and appology if the question is naive.

    ReplyDelete
  4. Alex LuTuesday, September 21, 2010 4:55:00 PM

    Hi MaxWealth88

    The conversion is automatic on maturity. Before maturity, all conversion is optional, which means that you have to execute the necessary form to do the conversion.

    ReplyDelete
  5. Alex LuTuesday, September 21, 2010 5:06:00 PM

    Hi Mason

    Your comment about Topglove's PE & EPS is backward looking. Going forward, is this company going to achieve the same earning? If not, how much earning can it achieve?

    Stock prices move up when a company's earning keeps growing. The PE multiple reflects a growing company. Once its earning starts to contract, the PE multiple must be adjusted lower. Then as earning continue to slide, the price would drop in line with the lower PE & earning. This new dynamic will be in place until earning stops sliding & starts to grow. The reverse process would kick in.

    As I've written earlier, rubber glove sector was in a cusp of a reversal in term of earning. From past experience, such reversal would take 12-18 months to run its course. We must wait patiently for signs of recovery in the earning of this sector before investing in these stocks.

    ReplyDelete
  6. CKTuesday, September 21, 2010 11:39:00 PM

    hi alex,its undeniable rubber glove counters are dropping like stone.however i notice that EPF is buying up supermax. why do you think they are doing this?

    ReplyDelete
  7. kaihsienWednesday, September 22, 2010 1:59:00 AM

    I bought TAGB for quite a long time and thinking to sell it but after saw your posting i would like to hold it. I travel to KLCC last week and saw some TAGB development start to move. Hope this share will out perform.

    ReplyDelete
  8. jimmyWednesday, September 22, 2010 9:12:00 AM

    Hello Alex,

    Can you help to clarify the exercise price of TAGB-PA to TAGB. Other than tendering the TAGB-PA, do we need pay for any exercise money during the conversion?

    Thank you

    Jimmy

    ReplyDelete
  9. jeffwkhMonday, October 18, 2010 4:50:00 PM

    Hi alex

    Need a advice here what does it mean by "Exercise/ Strike/ Conversion Price : MYR 0.5000"

    Does it mean that only when the price is strike at MYR 0.500 or above than tagb-pa it is able convert all ordinary share? OR it will be convert to ordinary share automaticly after year 3?

    thank you
    jeffrey

    ReplyDelete