Coastal broke above the horizontal line at RM2.60 in mid-July and made a high of RM3.12. Thereafter, it consolidated for 3 months and on October 22, it broke above the July high. With the latest breakout, Coastal is continuing on its uptrend. Based on projection, the current rally could hit a high of RM3.60 if we assumed that the distance of this rally is equivalent to the distance between the recent low (of RM1.60) and the breakout level (of RM2.60). That was what happened in March 2011.
Technically speaking, Coastal's current rally into all-time high territory is a very bullish sign. However, I am a bit puzzled as to why its warrant seems to be non-participative or lagging behind the price movement of the share. The warrant will either rally to catch with the share or the share will have to pullback. One possible explanation is that there is an offer to buy up the company where the offeror has fixed the prices for the share and the warrant. Since the warrant is now trading at a premium of 11%, the offered price for the warrant may be close to the current market price. As such, those in the know choose to buy the share instead of the warrant.
Notwithstanding the buyout scenario, I believe that the warrant is the better way to play the rally in Coastal. This is especially true if the warrant can surpass its horizontal line at RM0.62.
Chart 1: Coastal's weekly chart as at Oct 30, 2013_12.00pm (Source: Quickcharts)
Chart 2: Coastal-WA's weekly chart as at Oct 30, 2013_12.00pm (Source: Quickcharts)
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, Coastal.
It is unlikely the share price will be ramped up to take it private.
ReplyDeleteThis will be the first time a listed company is privatised at a all time high share price. Ha ha.
Hi Alex
ReplyDeleteDo you have investment idea on CAP? It have proposed 1 for 2 bonus warrant, exercise price at 35sen. But cap also at the same time will private placement 10% share at 35 sen as well....Cap IPO is 68senm NTA: 49sen and have 20% dividend policy payout. Based on annual EPS of 12sen, potential dividend is 2.4sen, PE 3.6x
Based on last financial result, cap have RMB 343m net cash, translating to RM 178m or 30sen/share, is about 2/3 of current share price is in the form of net cash. CAP Q3 result may record higher earning, if just based on cap net cash deposit alone of RMB 343m, currency strength in RMB from 0.49 to 0.52 vs. RM , Cap already can reap more than 6% higher.
Hi panaceaasia
ReplyDeleteYou are right in saying that it is unlikely that the share price will be ramped up to take it private. However, the rise of a share is something that's beyond you control or not entirely within your control. If words in the street is that ABC will be privatized, the share price may go up, whether or not there is a plan for privatization. Thus, some privatization exercises are aborted because the share price rose too much that the major shareholders find the cost to be prohibitive.
On the hand, some stocks go up even though there is no plan for privatization. That may happen because of rumors or deliberate manipulation.
In the case of Coastal, we cannot be sure whether there is or isn't a plan to privatize the company. I was merely examining the possible reason for the inaction in the price of the warrant vis-a-vis the share price rising.
Thank you for sharing.
Hi hng
ReplyDeleteCAP has proposed a 1-for-2 bonus warrant and a private placement 10% share (about 60 million shares) at 35 sen.
I can understand the logic of the bonus warrant issue: to reward the shareholders or to have a secondary instrument to 'stimulate interest in the stock'. However, I don't see the need for raising RM21 million via the private placement when the company is sitting on cash totaling RMB378 million as at 30/6/2013.
To raise pittance like this private placement only plants doubts in the mind of investors that the cash may not be in the company's hands. My reading about the extent of shadow banking activities in China make me worried that some of the Chinese companies may have placed their funds in the shadow banking system and they may not able to take back their funds. I hope I am wrong.
Hi hng,
ReplyDeleteBTW Cap has broken above the horizontal resistance at RM0.45. Its next strong resistance is at RM0.65.