Thursday, January 05, 2012

Canone- can or not?

A Technical Update

In the morning session, Canone rose 24 sen to close at RM1.30. We can see that the stock broke above its intermediate term downtrend line at RM1.02-1.03 two or three days ago, on thin volume. See Chart 1.

Chart 1: Canone's daily chart as at Jan 4, 2011 (Source: Tradesignum)

This morning, the stock rose sharply on volume of 40,000 board lots. It has surpased the high of 2010 of RM1.23. Its next resistance is at RM1.45 and then at RM1.65.

Chart 2: Canone's monthly chart as at Jan 3, 2011_plotted on log scale (Source: Tradesignum)

What could have triggered such a big move in Canone? Is it a favorable court ruling on its application for injunction against Kianjoo's proposed bonus issue and rights issue of warrants? Is it a favorable ruling on the case of the bid to buy over Kianjoo? Any one of these scenario would be positive for Canone but negative for Kianjoo.


Digital said...

One case outstanding is Datuk See versus Can-One & others and this case will mentioned tmr 6th Jan. I dont think the court case has any negative or positive impact to both of them. Their business still continue.

Stanley said...

Hi Alex, any comment on MSC? It seems that the stocks are grossly undervalue and no interest in this counter.

Alex Lu said...

Hi Stanley

MSC may be affected by its earning volatility. Two things affect its earning- the performance of tin prices and the provision or the write-back of provision on its investment in mining assets.

However, the stock should be well-supported at the current level of RM4.00.

Alex Lu said...

Hi Digital,

I take a different view.

In the current case, the court shall decide whether the sale by the receiver of Kian Joo Holdings S.B.’s 34.64%-stake in Kianjoo to Canone is valid. The See family took a suit to block the sale.

A ruling in favor of the Sees will return everything to status quo. This means Canone's share price will fall back after the dramatic rally in the last 24 hours and Kianjoo's share price may rally.

A ruling in favor of Canone may also achieve the same effect for Canone's share price because the good news is fully priced in. Kianjoo's share price will drop because the chance of a bonus issue & an attractive warrant issue will be very dim, if not ruled out completely.

However, there could still be a rally in Kianjoo later, despite a ruling in favor of Canone, because a fight over the control of Kianjoo. The stake that the receiver sold to Canone may not be big enough to deter such a fight.

This may explain why Canone has taken a suit to block Kianjoo's proposed bonus issue and rights issue of warrant (at only RM0.01 each). The proposed issuance of bonus shares is not the problem because the bonus shares should go to the existing shareholder, Kian Joo Holdings S.B. It is the proposed warrant issue of 1-for-4 that is in contention. What if Kian Joo Holdings S.B. abstained from subscribing for this warrant? Then, the Sees can swoop in and scoop up a substantial portion of the warrants. They can potentially buy up enough warrants to constitute 10-20% of the enlarged shares & warrants of Kianjoo. This warrant holding plus whatever shareholdings that the Sees has accumulated todate could match Canone's disputed stake of 34.64% (acquired from the receiver). If such a fight were to break out, Kianjoo's share price could soar.

Digital said...

So the show will start next week as the ruling in favour of Canone. Nevertheless both are doing is a matter who control who now.