GPacket-WB: Why Is it trading at a discount

Yesterday, GPacket (now at RM1.24) broke above its February high of RM0.93. GPacket-WB (now at RM0.49) also broke above its February high of RM0.46 yesterday.


Chart 1: GPacket's daily chart as at May 15, 2020_10.30am (Source: Malaysiastock.biz)


Chart 2: GPacket-WB's daily chart as at May 15, 2020_10.30am (Source: Malaysiastock.biz)

The bullish breakout is probably due to the news concerning the partnership between GPacket's Kiplepay and Tencent Cloud to offer electronic know-your-customer service known as KipleID e-KYC targeting banks and other financial institutions. For more, go here.

On the surface, everything looks good since the news flow is positive and the technical outlook is bullish. However, there is a nagging issue of GPacket-WB trading at a discount of 28% since its exercise price is RM0.40 and there is also no concern about short tenor as its expiry date is on Nov 24, 2023. The warrant is trading at below its intrinsic value of the warrant is RM0.84!!

The dichotomy between both securities achieving new highs and the warrant trading at a discount is more than a bit perplexing. It is actually worrying. In the stock market, where every sen counts, arbitraging activities should have taken place, with shareholders selling off their shares (thus depressing the share price) and buying the warrants (thus pushing up the warrant price) for the purpose of converting to shares. Why isn't this taking place now?

In the past, we have seen similar development in other stocks & their underlying warrants, which were eventually resolved with both the share price and warrant price dropping back when the players exit abruptly. When will this happen to GPacket and GPacket-WB? No one knows but the market.

If you have GPacket or GPacket-WB, you should track it closely and take profit along the way. If you have both securities, the one to sell first should preferably be the share. Good luck!