Table: Armada's CWs main terms & valuation
Friday, July 29, 2011
Armada- an option writer's dream?
Sometime ago, I posted about the mad rush to issue CWs for Maxis. Back then, 4 CWs were issued on the 7th day after the listing of Maxis (go here). That record, if I'm not mistaken, has just been erased by the issuance of CWs for Armada- incidentally another company within Arnanda Khrisnan's stable. Yesterday & today, a total of 7 CWs were issued on this stock. Total units of CWs issued 630 million. If the issuers managed to sell all the CWs at the listed IPO price, the total amount of premium collected was a cool RM94.5 million. Based on their market price at the close of today, these CWs have a total value of RM198.6 million. CW, the gift that keeps on giving.
Table: Armada's CWs main terms & valuation
Table: Armada's CWs main terms & valuation
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11 comments:
what happen to YTL power today?
Please give me some investment guidlines. Thanks
Hi Alex
Can you comment on Luxchem? its just announce Q2 result, EPS at 4.59sen, annualized earning at least 18sen. Based on current share price of 1.04, Luxchem only trade at PE<6x, is it fair valuation?
In addition, Luxchem also declare interim dividend of 3sen nett, and based on payout ratio of 50%, there will be another final dividend of 6sen, giving rise to total 9sen or nett yield >8.5% for current financial year ending Dec 2011.
Based on the fact that luxchem is fundamentally solid and have consistent earning as well as impressive dividend yield, why the share perform laggard and should it deserve better valuation?
CD at 31 sen with Armada at 4.13 looks reasonably "cheap". It has 11 months to maturity. Its premium is only 3.4% meaning that Armada needs to go up by a mere 3.4% in 11 months in order to have a positive payoff at expiry. its implied volatility is about 28%. Not too bad. However, does Armada worth that much of RM4.13 per share? Alex, your investment bank only give a target price of RM3.88 for Armada. Of course they will revise their target price close to the market price very soon. I have no doubt about that. And also the valuation at expiry is based on closing prices. Will a repeat of DRB-CE when mother share price was pushed down more than 10% deliberately happen again? I think it is likely. Why is that the valuation of all investment banks on the call warrants of Armada basing on closing prices and not the weighted average prices?
Hi Bro Alex,
I thought the issuer now can sell the cw direct in the market during 1st day of listing; instead of running a so called pre-listed sales?
The price submit to osk= ipo was 15 cen; but during the 1st day open, they might sell it at 0.30 ( via market maker). Therefore, believe that their premium collected are more than RM 95m.
Hi Ivan
You are right. The issuers could have collected more than RM95 million. Normally, the issuer would hold back 10-30% of the CW for liquidity purposes. If so, they could sell the CW at higher price than the IPO price.
What is your view on Pchem today?
base on 12.30pm trading, it seem pchem breakup 6.90 resistence, moving toward 7.00 and 7.10.
Bro, am i am right?
Hi K C
You raised a few questions. Let walk thru them:
1) I agree that Armada-CD is pretty attractive.
2) Is Armada worth RM4.13 per share? Knowing Ananda, his company is nearly fully valued on listing. For Armada to chalk up 90-sen capital gain upon listing is pretty amazing. If it was fairly valued on IPO, now it must be fully valued, if not overvalued.
3) I think the exchange should look into the valuation of the CWs for the purpose of settlement. What happened to DRBHcom on July 25 creates doubt about a level playing field. The sharp drop must have impact the calculation of the settlement price for DRBHcom-CE, which would benefit the issuer (OSK) but detrimental to the holders of DRBHcom-CE. Whether OSK or its agents pulled off that stunt or not- I believe they wouldn't dare to do it- the important thing is the doubt created in the mind of market players. Once that doubt exists, CWs and other structured warrants would have a hard time finding a market.
Hi hng
Your numbers for Luxchem seems correct. PE at 6.6 times. Dividend yield at 7.5%. Financial position is satisfactory. It is trading within an ascending triangle, with support at RM1.03 & resistance at RM1.10-1.12.
I don't know why it is not going higher. I think it could trade up to a PE of 7.5-8.0 times.
Hi Florence
Please refer to my last post on YTLpower. I believe it should hold at the support of RM1.95-2.00. If it failed to hold at that level, then it may go to the following levels: RM1.75, RM1.70 & RM1.50.
Alex,
Thanks very much for your response. The points given by you are nothing short of excellent. The market is funny. I thought the IPO market will be lackluster. I always believe that IPO stands for "it's probably overpriced". Never believe that AK has the benefits of shareholders in mind and never have thought that Armada can rise more than 30%(?) upon listing on an offer price of PE of 20,after taking it private some years ago with offer price of only 3+(Zee Moolah). I tend to believe that Armada is way overpriced, not only fully valued. Market may be efficient and that is why its call warrants do not fetch high premium. I personally will avoid them as there are many more existing traded call warrants with more attractive premium, leverage and Greeks.
A personal comment on Luxchem. Just a glance through its last year's annual report and its recent 2nd quarter results do not impress me at all. The so called good earnings are not translated to cash. Huge inventory and receivables buildup in relation to its revenue and earnings. Short term debts increases drastically. Margins are also contracting. I do not know about technical but PE ratio is too simplistic to use as a sole guide.
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