Earlier this month, CSL & Pelikan announced that the tie-up did not work out due to cultural differences and differences in pricing strategy. For more, go here. Even before this announcement, we have seen steady selling of Pelikan shares by CSL, dated back to July 2013 (here, here, here & here). By September 3, CSL ceased to be a substantial shareholder of Pelikan (here). At that point, CSL's shareholding in Pelikan was reduced to only 12 million shares. After the announcement of the termination of the tie-up and possibly the termination of further selling of Pelikan shares by CSL, Pelikan share price rallied higher.
Chart 1: Pelikan's daily chart as at Sep 27, 2013_12:30pm (Source: Quickcharts)
Chart 2: Pelikan's weekly chart as at Sep 27, 2013_12:30pm (Source: Quickcharts)
CSL share price has been declining steadily over the past one year. There was no announcement of any disposal by substantial shareholders to indicate similar disposal of the stock by those shareholders who obtained CSL shares via the share swap in October 2012. One plausible explanation is that these shareholders' position in CSL was smaller than 5% each and as such, their disposal of the shares (if any) need not be reported to Bursa Malaysia.
Chart 3: CSL's daily chart as at Sep 27, 2013_12:30pm (Source: Quickcharts)
Chart 4: CSL's weekly chart as at Sep 27, 2013_12:30pm (Source: Quickcharts)
There are 2 questions regarding the breakdown of the tie-up between the two parties and the sell-off in Pelikan that must be looked into.
1) Why were the question of pricing strategy & cultural difference not examined before the tie-up was announced?
2) Why was CSL so determined to dispose off its Pelikan shares?
The answer to the second question is important because it will enable you to have an idea whether the sudden rally in Pelikan can sustain after the current reversion-to-the-mean rally. CSL has cash balances of RM1 billion as at 30/6/2013 (here) and it does not need to dispose off the stock in a fire sale. Since CSL dumped the shares in the market, it means CSL must have felt that Pelikan share price is likely to drop in the future. If so, the rally in Pelikan may be fueled more by hope than substance. We would have learned long ago that investing (or, even trading) based on hope can be very tricky.
For your information, I have attached here Pelikan's last 8 quarterly results as well as the chart of Pelikan's last 36 quarterly results.
Table: Pelikan's last 8 quarterly results
Chart 5: Pelikan's last 36 quarterly results
Based on the above, I believe we must be very careful when trading in Pelikan shares. I have no opinion on CSL. Good luck!
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, Pelikan & CSL.
Quite disappointed that at the end, you said you have no opinion on CSL. I'm interested to hear your opinion on CSL.
ReplyDeleteThank you!
Hi alex-interesting uptake on pelikan and csl.if csl has 1B in their books;why then the share price is heading south?will it hit bottom soon?Perhaps with the chinese president coming to Malaysia will it be play up to save face? The share price is now nearing ground floor it wont be hurting at this level.WHAT DO U THINK ?
ReplyDeleteHi charles leong
ReplyDeleteI honestly don't know what to think or say about these Chinese stocks. Take for example, CSL. Its EPS for FYE Dec2012 was 19 sen (dropped from 33 sen last year). For 1H2013, EPS was 9.6 sen. Thus EPS for FY2013 would be about 19.2 sen. At the current price of 23 sen, the stock has a PE of 1.2 times. That's ridiculously cheap!!!
Next, its NTA is about RM1.14. That gives you a Price to Book of 0.2 times. Again, that's a steal. Its cash holding is about RM1.05 billion. That means its cash per share is about RM0.85. The stock is trading at 0.27 time its cash holding. That kind of ridiculous value simply shows that investors do not think that the cash holding is real. And, I don't blame them. Who would be holding 67% of its funds in cash (cf. Total Assets of RM1.55 billion).
Let's assume that the account is accurate, the next question to ask is why aren't the major shareholders privatizing the company.
You may notice that the company has started a share buyback program (see link below). To-date, it has accumulated only 9 million shares. If it were to spend 10% of its cash balances (or RM100 million) to buy up the shares in the market, the share price would zoom up. What better way to reward your faithful shareholders!!
Let's wait & see.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/#/?category=SB&sub_category=all&alphabetical=All&company=5214