Wednesday, October 11, 2017

Sunway-WB: Such High Premium? (UPDATED)

If you have been in the market long enough (or, too long for some of us), you may remember one peculiar factoid about company-issued warrants of large construction-based stocks, such as Gamuda and IJM: They tend to have very low premium. My understanding is that these companies consistently issued warrants as sweeteners for their bond issuance and, as result, after the initial euphoria, the warrant premium will drop back to as low as 1-3%. Today, Gamuda has one warrant outstanding- Gamuda-WE- which is trading at a premium of 1.5%. Currently, IJM has no more warrant outstanding. Its last one, IJM-WC had expired in Oct 2014.

Now, the last 2 days we've witnessed the euphoric rise in Sunway-WB. This warrant has an exercise price of RM1.86 and expiring only in Oct 2024. Based on its current price of RM0.70 and share price of RM1.82, Sunway-WB is trading at a premium of 40.4%.

If my observation of past premium for construction groups holds true, the current price of Sunway-WB can only sustain if Sunway share price were to rally strongly & quickly. Otherwise the price of Sunway-WB will likely come down. If you have this warrant, it is advisable to take some profit soon.

Chart 1: Sunway-WB's intra-day chart as at Oct 11, 2017_10.45 (Source:

Chart 2: Sunway's daily chart as at Oct 11, 2017_10.45 (Source:

Thanks to a reader's comment, I like to update my post to amend an error in the exercise price.

The exercise price of RM1.86 per Warrant will be effective for a period of one year from the date of issuance of the Warrants. Subsequently, the exercise price is subject to a fixed annual step-down of RM0.07 on each of the anniversary dates from the date of first issuance of the Warrants.

This means that the exercise will drop progressively as follows:
  • RM1.86 on and after Oct 4, 2017
  • RM1.79 on and after Oct 4, 2018
  • RM1.72 on and after Oct 4, 2019
  • RM1.65 on and after Oct 4, 2020
  • RM1.58 on and after Oct 4, 2021
  • RM1.51 on and after Oct 4, 2022
  • RM1.44 on and after Oct 4, 2023

How do you determine the premium? To be frank, I am not sure. If we used the average exercise price of RM1.65 - the mid point from the above schedule – then, the premium is about 29% now (based Sunway-WB at 0.675 & Sunway at RM1.80). It still looks expensive.

1 comment:

Dom said...

Hi Alex

Would like to get your advice on Hovid takeover offer. Is it reasonable or to hold and wait?