Wednesday, June 12, 2013

Yinson- growing up real fast

In the past two weeks, Yinson has captivated the interest of investors in a big way. It announced two big developments, namely the private placement to a strategic investor, Kencana Capital & the acquisition of a Norwegian company with exposure in the FPSO & FSO sectors. In the process, the share price rose from RM3.00 in late May to RM5.00 yesterday.

From the intra-day chart below, we can see the spectacular movement in Yinson's share price. However, a casual observer would immediately pick out one rather peculiar aspect of the price movement, which is that the share price seems to move ahead of the announcement. For example, Yinson rose from RM3.00 to nearly RM4.00 before the announcement of the private placement and again the share price moved from RM4.00 to nearly RM5.00 before the suspension prior to the announcement of the acquisition of the Norwegian company. Those in the know would have benefited substantially from the insider's knowledge- something the company should be concerned about.

Chart 1: Yinson's intra-day 30-min chart as at June 11, 2013 (Source: Quickcharts)

If you looked at the long-term monthly chart, you will see that the breakout above the RM3.20 mark in early June put Yinson in the all-time high territory. Undoubtedly, the Yinson of today is a very different animal from the Yinson of the past. The substantial change in the business may call in question the relevance of the chart as a tool to analyze the stock. I believe that the chart still plays a part in our analysis but we have to place less reliance on it & question whether the support & resistance levels established years ago would still operate as support or resistance.

Since Yinson is in all-time territory, the stock is in a very bullish mode. However, we should remember the old saying that lightnings seldom strike twice or thrice. After these two meaty announcements, Yinson would have to prove that it can execute. Before it can begin to execute, it must merge its nascent Oil & Gas division with the newly-acquired Norwegian business. This hard work is not as sexy as the M&A announcement but it is the foundation for justifying its market capitalization of RM1.05 billion today when its net profit for FYE31/12/2012 was only RM34 million (go here)- giving the stock a whopping trailing PE of 31 times. Can Yinson do the heavy lifting? Only time will tell.

Chart 2: Yinson's monthly chart as at June 11, 2013 (Source: Tradesignum)

As such, you must exercise careful discretion when trading or investing in Yinson. We must bear in mind that Kencana Capital (a private company of Mokhzani Mahathir) bought into Yinson at only RM2.82 apiece last week (thus sitting on a paper profit of RM60-70 million). Talk about good timing!

For more on Yinson, check out my previous posts here & here.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Yinson.

No comments: