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Thursday, March 27, 2014

Salcon: When you got to go...

I have posted on Salcon in June & September last year (here & here). Basically, the story is about Salcon selling of its water assets in China and using its proceed to get into the property business by teaming up with Liew of SPSetia.

Nothing much came out of that story and the stock has been hovering around the RM0.65-0.70 level for the past 6-9 months. I expect the stock to remain at this level for another 2-3 months as the market awaits the expiry of its warrant (exercise price at RM0.75; maturity date: May 16, 2014; 104m warrants outstanding).

However, the stock rose up to RM0.75 today. At the time of writing this post, it is trading at RM0.76. That's a bullish breakout, which could send the stock to RM0.81 & beyond that to RM0.88. The interesting point to note is that the warrant, with 50 days to expiry, is now trading at RM0.065- giving it a premium of 7%.

It is my observation (and a rule) that if a stock charges higher, when one of its derivative(s) is near the expiry date, then you better pay attention. If the derivative concerned is trading at a premium, then you should get ready to go shopping.

Based on the above, Salcon is a trading BUY. I prefer Salcon to the warrant for the simple reason that if anything goes wrong -remember Murphy's Law- you won't have a double whammy.


Chart: Salcon's weekly chart as at Mar 26, 2014 (Source: Tradesignum)

Note:
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, Salcon.

4 comments:

lai said...

Hi Alex,

Do you sense irrational exuberance in Dsonic warrant?

Alex Lu said...

Hi lai,

The question to ask is this: How do you manage the risk of issuing a CW for a stock like Dsonic?

I don't know how they did it or continue to do it. Theoretically, every 6000 Dsonic-CA issued should be backed by 1000 Dsonic owned. Only then, the rise in the value of the CW (a 'loss' to the issuer) would be matched with the rise in the value of the share owned (a 'gain' to the issuer).

Ambank issued 100m Dsonic-CA. Are these backed by shares? If so, how? Assuming the CWs were 60% subscribed, you should have 10m shares in hand.

Would you dare to hold so much shares in a stock that has risen 13-fold in one year? Would you dare not to hold anything less?

Is there a back-to-back arrangement with one or more major shareholder(s)? If so, why would the major shareholder(s) enter into this arrangement? Are they thinking that the share price has been maxed out?

These are some questions to ponder. Looking at the active trading in the CWs vis-a-vis the sedate trading in the share price, I believe Amcorp has an arrangement with the shareholder(s).

This is a sign that the stock's upside is quite limited in the near term notwithstanding the generous 1-for-1 bonus issue on the way.

http://www.bursamalaysia.com/market/listed-companies/structured-warrants/1573429

lai said...

Hi Alex,

thanks for the thought.

Rgds.

lai said...

Hi Alex,

LB Aluminium is still a buy or hold call at this juncture, given its attractiveness yet?

Thanks.