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Wednesday, February 17, 2016

Gamuda-WR: Trading signals underlying bullish tone for Gamuda

For the past 4 days, we have seen the trading of the rights for Gamuda new warrant (likely to be named Gamuda-WE). This rights is referred to as Gamuda-WR which is currently trading at RM0.41. Based on the share price of RM4.42 presently, the premium of the new warrant would be about 6.6%. (Note: The new warrant exercise price is RM4.05 while the cost of subscription of the rights is RM0.25.)

When the rights of any instrument is traded, we would normally see arbitrage activity between the share and this rights. The arbitrage process for right issue of shares is pretty straight forward: You would sell the share if the net proceed is more than the cost of the rights (referred to as OR) plus the cost of subscription for this rights. When this scenario presents itself, you would sell the share and buy the rights and subscribe for the rights. However, the effect of this action -referred to as arbitrage- would be to cause the share price to go down and the OR price to go down until the last day of trading when some window-dressing activity would kick the price up momentarily at the close.

This principle can also be applied to the rights to subscribe for warrant (aka WR) in an indirect manner. Thus, a shareholder may sell the share and use the proceed to get some exposure in the stock via the warrant (Gamuda-WE) and take some cash off the table or alternatively he may use the entire proceed to get a larger exposure in the stock.

In the case of Gamuda new warrant, we can  see that investors or speculators are fairly enthusiastic in getting into this warrant (Gamuda-WE) as they began to buy on the 2nd day of the trading of the rights (Gamuda-WR). This is despite the fact that the share price continued to slide lower until yesterday. Thus, I believe that the share price has dropped sufficiently that we may well have seen a temporary bottom for the stock.

Based on the above, I believe that it is relatively safe to get into Gamuda now. For those with higher risk appetite and longer investment time horizon, you can consider buying Gamuda-WR and apply for the new warrant (Gamuda-WE).


Chart 1: Gamuda's 30-min chart as at Feb 17, 12016_ 9.25am (Source: ShareInvestor)


Chart 1: Gamuda-WR's 30-min chart as at Feb 17, 12016_ 9.25am (Source: ShareInvestor)

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, Gamuda or Gamuda-WR.

9 comments:

PEGGY Method said...

Hi, Ho Hup any buying signal? Thanks

Alex Lu said...

Hi PEGGY Method

Ho Hup tested its long-term uptrend line support at RM0.82. It could be a good stock for a rebound play. Its next resistance would be RM1.00 & then RM1.10.

lai said...

Hi Alex,

TekSeng result is nottoo shabby. May i have your opinion on this company pls. Much thanks.

Chee Wah Ooi said...

Hi Alex,

Can you please explain briefly about how this warrants work? Why it would cease on 19th? And what will happen after all?

Thank you

Alex Lu said...

Hi Chee Wah Ooi


In brief, the warrant rights (WR) is a ticket to subscribe for the warrant. The trading of the WR will enable those who received it as an entitlement, to sell it off if they do not want to subscribe for it. It also allows those who did not receive it to buy it from the market.

After paying the subscription price of RM0.25, you will receive the warrant. On listing, this warrant (probably named Gamuda-WE) will be traded like all past warrants at a decent premium of 10-20% (depending on market condition).

If you want to learn more about warrant, go to https://www.warrants.com.sg/edu/investoracademy/home.html

Alex Lu said...

Hi lai

TekSeng's result has been pretty impressive. The jump in bottom-line was due to its Solar division reporting profit in FY2015 after its gestation period. However its price run-up has been furious; from RM0.35-0.40 in August 2015 to RM1.20 in early 2016.

While the EPS for the stock may touch 15-16 sen (the annualized EPS based on 4Q2015 EPS), this may not pan out as the company's profits in the past few quarters had been fattened up by forex gain.

Going forward, we will see a shifting battle between the downdraft from a stronger MYR and the up swell of profit from the Solar division- the outcome will determine the price movement of this stock.

azhan said...

I have bought gamuda we today and im trapped at 0.990 and 1.00..in your opinion are this warrant will be up in short term period or not..need some other thoungt plz

Alex Lu said...

Hi azhan

You are trading Gamuda-WE! You must live with the outcome of a trade.

If you are "investing", then you would look at the long-term prospect of Gamuda. If the prospect is good, the share price will go up. Gamuda-WE will follow suit. At the current price of RM0.955, Gamuda-WE has a premium of 6%. That's alright...

Are you investing or trading? If you are investing, chances are fairly good that the warrant will recover.

azhan said...

Im trading...thank god the price jump up to 1.00...tqvm mr alex