Structured Warrants – Gearing & Greeks - Part 4

 

In this article we will look at gearing factor and sensitivity coefficients – the Greeks which measure change in warrant value via change in other variables.

 

Gearing & Effective Gearing: Structured warrants cost only a fraction of their underlying shares. They provide holders with greater exposure to price movements as they generally rise and fall more steeply in percentage terms. If a warrant is priced at RM0.30, and the underlying share is trading at RM1.50, the gearing is 5 times. The price of one warrant offers exposure to 5 shares. In bull markets, warrants will always be among the top risers and the opposite holds true in bear markets.

 

The definition of gearing is:

 

Gearing = Share Price / Warrant Price (adjusted by exercise ratio)

 

The following chart plots the relative price movements of a call and put warrant against corresponding movements in the underlying share price. Note the percentage change in the value of the underlying share compared with the value change in the call warrant and the put warrant. During a 3-month period, the underlying share price falls by 10% (at Point A) and increases by 8% (at Point B) - share price varies over an 18% range. In contrast, the call warrant fluctuates within a 75% range, while the put warrant fluctuates within an 80% range but in an opposite direction to the call.

 

Gearing decreases as the share price increases.

 

Delta & Gamma: Delta refers to the rate of change of warrant price for a given change in the underlying share price. For call warrants, the delta will fall between 0 and 1; for puts it will be between 0 and -1. At 0, the warrant is impartial to any moves on the underlying share. At 1, the warrant is expected to move sen-for-sen with the underlying share. Typically, at-the-money warrants will have a delta of 0.5. As the warrant moves in-the-money, the delta will approach 1.

 

The most savvy of traders will aim for medium-delta warrants, in the range of 0.4 to 0.5. Any delta too low will denote an out-of-money warrant with strike too far away.

 

The delta is a constantly changing number. The rate of change of delta is known as the gamma. One could visualise delta as the speed of the warrant, and gamma as the acceleration. The gamma simulates the changes on the warrant price for different underlying share price. Any move on the underlying share will move the delta higher, as with the gamma.

 

Vega: Vega measures the sensitivity of warrant price to change in volatility. Vega is the highest for at-the-money warrants, and tends to be higher for longer-dated warrants.

 

With several issuers issuing warrants on the same shares, the belief is that investors and traders should focus on the warrant with the lowest implied volatility. This is only true if the issuers will buy back their warrants at a proportionate volatility level. An example would be buying a warrant at an implied volatility of 45%, which the issuer buys back at 42% versus buying a warrant at a volatility of 40% that is bought back at a volatility of 30%.

 

Theta: Also known as time decay, Theta is expressed in terms of sen or percentage per week (or per day closer to expiry). Eventually, the warrant will need to lose the time value entirely. But theta is not linear to time – it will get proportionately larger as it approaches expiry.

 

Rho: Rho measures the sensitivity of warrant prices to changes in interest rates. However, the level of interest rates, as a variable, is likely to influence neither warrant pricing nor trading decision making process.

 

Final Thoughts: The Greeks do not help answer which warrant to buy. However, they are reliable forecasting tools on the changes in warrant prices versus the underlying share price movements.

 

In the next issue, we will discuss some basic strategies on trading structured warrants.

Parameters & Variables of Structured Warrants - Part 3

To figure out the relationship between share price and the associated warrant price, the investor has to break down the premium factor that he/she pays for.

 

Premium, Intrinsic & Time Values: The premium measures the extra cost incurred when buying a warrant and “exercising” the warrant into share over direct share purchase.

 

Premium = [(Warrant Price + Exercise Price) - Share Price) / Share Price] x 100%

Example (Diagram 1): if a warrant priced at RM0.50, has an exercise price of RM1.00, while the underlying share price is RM1.20, the premium on the warrant is 25%.

 

Premium (%) = [(0.50+1.00)-1.20]/1.20 x 100% = 25%

 

Besides premium, there is another dimension of valuing structured warrants, based on intrinsic and time value.

 

Warrant Price = Intrinsic Value + Time Value

The intrinsic value of a warrant is the difference between share and exercise price. In our example, the warrant’s intrinsic value of RM0.20 represents the possibility of buying shares for RM1.00, even though the market share price is RM1.20 (Diagram 2).

 

The additional RM0.30 is known as the time value. It reflects the payment for profit opportunity if the underlying share moves in the warrant buyer’s favour. In our example, if the warrant was to expire tomorrow, it would be priced around RM0.20. But if the warrant has 9 months before expiry, there's a high chance of the share price increasing. At a time value of RM0.30, this tells us that investors are willing to pay RM0.30 for the potential future gains before warrant expiry. The downside is that time value will fall closer to zero as the expiry date approaches. This is known as time decay.

 

If a warrant is out-of-the-money, by definition the warrant has no intrinsic value. In this case, the time value component accounts wholly for warrant price.

 

The price will not be lower than its intrinsic value due to the possibility of a risk-less arbitrage – where one buys the warrants and exercises them into shares, for a lower market share price. If a warrant is deep in-the-money, or expires shortly, the price may trade at a small discount to its intrinsic value.

 

Valuing Premium & Time Value: A warrant with a time value of RM0.20 is not necessarily “cheaper” than one at RM0.30. Both premium and time value parameters must be used in comparisons.

 

Deep out-of-the-money warrants have high premiums, which get lower when becoming more in-the-money. Premiums are regarded as measures of warrant price. While intrinsic value is directly related to share and fixed exercise price, the unpredictable nature of time value makes analysis difficult.

 

Implied Volatility: In determining “fair value” of warrants, the most adopted pricing model is the Black-Scholes one. It takes into account the inter-relationship between share and exercise price, expiry date, risk-free interest rate and volatility.

 

Volatility represents absolute price movements, of the underlying share over a time period. Traders need to understand that huge volatility is actually beneficial due to “limited loss, unlimited upside” characteristics of structured warrants.

 

There are two volatility types – historical, which calculates past variations of underlying share price, and implied, which represents market expectations of future volatility in underlying share price.

 

Examining historical volatility requires care, since short-term can differ from longer term. Besides underlying share direction, investors need to question if current volatility is likely to continue.

 

Implied volatility is derived from working backwards the current warrant price through the Black-Scholes equation. A warrant is expensive if implied volatility outweighs historical volatility assuming full market efficiency. In reality, implied volatility takes into account maturity length, nature of warrants, and spot/strike levels. Implied volatility is generally higher for longer-dated warrants and put warrants and at-the-money warrants.

 

In the next issue, we will discuss the last of variables - gearing and effective gearing, as well as the sensitivity coefficients – the Greeks (Delta, Gamma, Theta, Rho, and Vega) - and their applications in warrant trading strategies.

What exactly are structured warrants? - Part 2

Basics of Structured Warrants

Back to Basics: Structured warrants are proprietary instruments issued by financial institutions that give holders the right, but not the obligation, to buy or sell the underlying assets (in our series, shares) at a future date for a fixed price. The two basic types of structured warrants are call warrants and put warrants. A call warrant gives the holder the right, but not the obligation, to buy the underlying share for a fixed price known as the exercise (strike) price at a future date. This is a synthetic long (buy) position in the underlying share. A put warrant gives the holder the right, but not the obligation, to sell the underlying share to the warrant issuer for the exercise price. This is a synthetic short (sell) position in the underlying share. Call warrants allow the holder to profit from share price increases. Put warrants allow the holder to profit from share price declines.

The differences between traditional company-issued warrants and structured warrants is best described in the table below:

Company-issued warrants Structured warrants

Issuer Company over its own shares Third party banks or financial institutions

Dilution New shares issued upon exercise No new shares issued

Type Limited to call warrants only All natures : call, put, exotic, spread

Expiry Typically spans over many years Typically spans over 6 months to 1 year

Liquidity Dependent on market forces, typically low or inconsistent Depending on market maker, high

Holders Individuals, institution vested in company Investors, traders

Pricing Subjected to demand & supply Priced by market maker to option models

American or European? These two styles of exercise for warrants deserve some closer scrutiny. An American style warrant allows holders to exercise their warrants at any time up to and including their expiry date. European style warrants allow exercise only on the expiry date. All structured warrants issued and listed on Bursa Securities thus far have been American style call warrants (the reasons why call warrants are issued and traded more often than put warrants will be covered in future sections). This is intriguing. For issuers, European style warrants are simpler due to infrequent exercise – only on expiry. In markets of Europe, Hong Kong, and Singapore, there is a historical precedence of the European style warrants. In actuality, neither style seems to have any significant advantage over the other. For investors, the American style warrant appears more preferable owing to exercise flexibility. In reality, where there is active and efficient market making, the existence of time premium before maturity usually makes it uneconomic to exercise listed American style warrants early. Think about it – the lower premium of the European style warrants will be more valuable than an early exercise right which is rarely taken up. So are the American style warrants pricing in additional premium at placement stage? In this aspect, expect to see an evolution of issuance preference in favour of European style warrants.

Strike it Rich: A call warrant is out-of-the-money when the exercise price is higher than the share price and in-the-money when the exercise price is lower than the share price. It will be worthless if the share price is lower than the exercise price on expiry. However, with upward movements in the share price, the holder can still earn excellent returns trading the warrant prior to the expiry date. This is known as the gearing factor (to be covered in subsequent sections).

Right Cover: The exercise (or conversion) ratio of a structured warrant is important in determining the quantity of warrants needed to exercise to buy or sell one underlying share. In the analysis of any warrant, or comparison of many warrants, check the exercise ratio. If the pricing appears far off, the reason could be an erroneous assumption of exercise ratio. To be objective, ensure consistency by, for instance, restating all prices on a “per warrant” basis.

Let illustrate with an example – two similar warrants (same exercise price, expiry) with different exercise ratios. A 1:1 warrant trades at RM0.50, and the other (2 warrants for 1 share) trades at RM0.30. The latter might appear attractive on an absolute basis, but it is actually carrying a higher premium over the RM0.50 tranche.

Settlement: Structured warrants are typically cash settled. In European style warrants, holders redeem a cash amount equivalent to the amount the warrant expired in-the-money. In the local context (American style), holders redeem a cash amount equal to the difference between the closing price prior to the exercise date and the exercise price. For example, if a Gamuda call warrant had an exercise price of RM5.00, holders will receive RM0.50 if Gamuda shares closes RM5.50 the day prior to the exercise date, assuming a 1:1 exercise ratio. For investors, the importance of knowing the precise exercise ratio plays a part in calculating the cash settlement amount.

In the next issue, we will discuss the various basic parameters (gearing, intrinsic and time values, premium) as well as advantages and disadvantages of using structured warrants to enhance your portfolio.

General Overview of the Structured Warrant Market

For your reading pleasure... :)

 

Growing like Wild Fire : The structured warrant markets in Asia underwent a huge metamorphosis in 2006. The success was partly attributed to the buoyant regional stock market, and partly to the growing familiarity of the momentum instrument. With a furious bullish undertone, turnover in warrant trading now accounts for nearly 30% of Hong Kong's total turnover compared with just 7-9% a few years ago. In Singapore, it contributes to 5-10% of total daily turnover. In Korea, where structured warrants are known as equity-linked warrants (ELWs), the turnover now comprises 10% of overall market turnover since inception in December 2005.

 

Such appetite to consume volatility is evident in Malaysia, despite its slow growth momentum since the new guidelines from the Securities Commission (SC) came into effect in May 2003. Bursa Malaysia shifted gear in the second half of 2006 - we saw CIMB accelerated its warrants issuance program, while AMMB and OSK Securities followed in tandem. Still, the warrant market over here is relatively small and inactive - from 12 call warrants at the end of 2005 to 35 currently.

 

So what is to be expected in 2007?

 

Planting the Seeds: Expect to see further relaxation of the listing requirement. The current placement methodology (new issues need to be placed to 100 holders, or 50 holders each subscribing to a minimum value of MYR100,000) is a barrier to expand the warrant market. Hong Kong and Singapore have abandoned such pre-placement regulations in 2001 and 2004 respectively, and have since replaced it by the "warrant supermarket" approach ¨C where issuers can list all sorts of warrants and "shelf" them for public consumption. Risk management takes effect not until the warrants are consumed in the secondary market. The result is a heavy influx of warrant launches. Listing fees were lowered and made competitive as an effect (not a cause) of the huge supply of issuance.

 

Such supply-driven dimension has serious connotations in fuelling the popularity of structured warrants. Currently, there are 20 and 13 issuers in Hong Kong and Singapore respectively, although only a handful accounts for market dominance. They compete to issue or roll-over new warrants with relevant strike levels as the market trended upwards throughout 2006. As it stands, there are 550 structured warrants listed on SGX, compared to 35 on Bursa Malaysia (note that both SGX and SC revised guidelines in 2003). The other implication is that the breadth of the issuers and the warrant issues will inevitably translate to the depth and market making efficiency on the warrant market.

 

Keeping it Fair, Tight and Liquid: Prior to the current market making system, daily prices of structured warrants were based strictly on forces of supply and demand. There was simply no guarantee of ample liquidity on a day-to-day basis. Nonetheless, the existing market making system has not eradicated the legacy of doubt and suspicion. Recent examples were the quotations of two call warrants - Resorts-CA and Genting-CA, which traded in opposite directions to their respective underlying stocks. Issuers' goodwill is thus eroding fast.

 

The challenge for Bursa Malaysia is to induce inter-warrant competition from foreign issuers running on a global platform to improve the overall market making efficiency. Reputational risks will increase with more issuers competing on a selective group of stocks. Any inconsistency in pricing from volatility manipulation or failure to maintain a tight bid-offer spread will be fast acknowledged by the demand side. While the appetite to consume volatility can become more than manageable on the delta- and gamma-hedging fronts for some issuers, a more competitive supply side will evolve in the hedging front and collectively adopt less defensive market-making techniques.

 

Teach and Reap : Bursa Malaysia, the issuers, and the distributing brokers are obviously anxious to keep the local warrant market moving, and thus need investors to understand structured warrants, trade skilfully and profit from it. In Hong Kong and Singapore, warrant issuers actively provide data on warrants indicators and conduct (sometimes joint) product seminars on warrant trading. Websites with tools and simulators of prices based on different pricing parameters are clearly lacking here.

 

Final Thoughts: There is definitely more scope for growth in the structured warrant market in Malaysia. As the above-mentioned changes are foreseen, so would the trading mentality evolved. The typical buy-and-hold warrant trading strategy will only succeed with efficient market makers from a breadth of issuers. High delta in-the-money warrants will be replaced and rolled over fast with relevant strike levels, and issuers need not resort to defensive market making tactics (e.g. widening the spreads) and rapid implied volatility adjustments. Else, investors and traders will adopt a shorter holding period for structured warrants upon closer scrutiny of the various market-making mechanisms employed by the issuers. In markets like Singapore and Hong Kong, about 90-95% of total turnover on structured warrants were contributed by day-trades on average. This is a natural evolution after 3-4 years of product adoption. The Malaysian warrant market cannot afford to undergo this chicken-and-egg syndrome at such infancy stage, where overwhelming participation from the day-traders prevails over the actual retail clients.

 

In the next issue, we will discuss the basics of structured warrants.

Received GAB's Dividend

1. Just received GAB's dividend. :) Next round of dividend should be around April. Touching RM10 and above, is just a matter of time. :)

2. BJTOTO ramp up 10sen instead after the news. Thought the sell off would be greate but it turn out otherwise. Nevertheless, just keep till the ex if can't buy more.

3. All futures stock are in green zone. :) would expect another good run tonight for Dow Jones. Just have to wait and see. C may run up further. :)

4. As of today, stay put and do nothing. :) All portfolio remain unchanged. Till then happy trading.

BJTOTO - Time To Scoop ?

1. I did a scalp trade again on Gamuda-CI. :) Quick in quick out and fast money. :)

2. C has reached USD4.77 yesterday. I continue to be bullish on C, as now that the government has unloaded its stake in the company. Minimum USD5 is not a problem. :)

3. We should be glad if BJTOTO drop below RM4 due to below news, that's mean is an opportunity for us to grab more. 1 or 2 Q profit drop is nothing, so long as we know the future projection is good and dividends keep coming. :) We should be happy when people are in fear. Just watch and see how much we can scoop if it really come. :) 

BToto Q2 net profit down on higher prize payout, duty

PETALING JAYA: Berjaya Sports Toto Bhd (BToto) made a net profit of RM65.1mil for its second quarter ended Oct 31, which is 36.5% lower than the RM102.5mil posted in the same quarter last year, mainly on higher prize payout and pool betting duty.

Revenue for the period came in at RM845.8mil against RM857.1mil previously while earnings per share stood at 4.87 sen compared with 7.62 sen. The numbers-forecast operator declared a second interim single-tier exempt dividend of 4 sen per share for the quarter.

The drop in revenue and profits was due to lower number of draws and an increase in pool betting duty from 6% to 8%, coupled with higher prize payout, BToto told Bursa Malaysia yesterday.

Barring unforeseen circumstances, the directors are optimistic that the group's operating performance for the remaining quarters of the financial year ending April 30, 2011 will remain satisfactory, it said.

For the six months ended Oct 31, BToto made a net profit of RM129mil compared with RM203mil a year earlier.

This Bull Is Being Recharge !!!

1. So far, nothing change in my portfolio. Still keeping them tight and ride with the rally. :)

2. Market is very active and bullish. Likely to inch higher. Did some scalp trades on Genm-CL and Gamuda-CI, earn some pocket money for lunch. :) I don't trade warrants unless i see some opportunity there. This kind of trade is either win or lose but when you know the mother is gonna come, then very high chance you will make money on its warrant. :) That is the indication. This type of game is very dangerous when market go against you, as warrant is being structured as an instrument for "leveraging", you can lose your paint out if not careful. I trade warrant for fun and excitement with very small quantity. As this is a quick trade, i often closed them within intraday. :)

3. Many of my investment already bear fruits, collected dividend from Amfirst, Hektar, Atrium and many more to come. Carlsbg, GAB are up, C, GSP, Golden Agri are up. Some have sold early like DRBHCom, Kfima, Qcaptical also up. Every thing seem to go up, up up !!!! :) Christmas rally, New Year rally, CNY rally all up. :) Most likely we have good time till the next 1H. :)

REITs: Few earnings surprises

Living up to their reputation for comparative predictability and low risks, earnings results for real estate investment trusts (REITs) for the latest quarter ended September 2010 offered few surprises.

CapitaMalls Malaysia Trust (CMMT) announced its maiden earnings results for the period from July 14 to Sept 30 — reporting net profit of RM21 million, which was just marginally ahead of the forecast made in its prospectus.

Its three properties — Gurney Plaza in Penang, The Mines in Selangor and Sungei Wang Plaza in the heart of Kuala Lumpur — have a combined net lettable area of almost 1.88 million sq ft and maintained almost full occupancy, averaging at roughly 98.3% as at end-September.

Leases up for renewal in the year-to-date — which accounted for about 16.9% of total net lettable area under its management — too have registered positive rental increases, ranging from 2.5% for Sungei Wang and 6.6% for Gurney Plaza.

CMMT’s maiden profits distribution expected in 1Q2011

CMMT has committed to distributing 100% of earnings in the first two years of listing and at least 90% of annual profits thereafter.

We expect its first dividend payment for the eight months to December will be paid sometime 1Q2011.

Based on the trust’s earnings forecast, distribution will total 4.78 sen for this year and 7.44 sen for 2011. That would earn unit holders a yield of 4.2% and 6.6%, respectively at the current price of RM1.13.

CMMT is a pure play shopping mall REIT sponsored by CapitaMalls Asia, a member of Singapore-based CapitaLand group of companies. It was one of the two REITS listed on the local bourse this year and is currently the second largest in terms of market capitalisation.

Similarly, Quill Capita Trust’s earnings results for 3Q2010 were broadly in line with expectations. Net profit (excluding unrealised gains/losses) was up a decent 7% year-on-year (y-o-y) during the quarter and 4% for the nine months to date. It is on track to meet our earnings estimate of some RM34 million for the full year.

Assuming the same level of profit payout as last year — just over 92% — distributions would total 7.91 sen per unit, which would give unit holders a fairly attractive yield of 7.3% at the current price of RM1.08. The trust made an interim distribution of 3.85 sen per unit back in August.

Quill Capita is trading below NAV of RM1.22

Quill Capita made no new acquisition in the past two years but is believed to be looking at two properties within the Klang Valley worth some RM400 million.

At present, the trust has 10 properties in its portfolio — with net lettable area totalling more than 1.29 million sq ft — worth RM788 million. Its assets, primarily commercial-industrial properties are located in Cyberjaya, Kuala Lumpur, Selangor and Penang.

In addition to attractive yields, Quill Capita is currently trading below its net asset value of RM1.22 per share. That suggests room for capital gains for investors.

On the other hand, AmFirst REIT’s underlying earnings for 2QFY2011 were a little disappointing.

Revenue fell 10% y-o-y and 12% quarter-on-quarter (q-o-q) to RM22.1 million due, primarily, to a drop in the average occupancy rate for Kelana Brem Towers — to 63.8% as at end-September — and rental rebates as compensation for the disruption during refurbishment works at Summit Hotel.

More positively, occupancy at its flagship properties, Bangunan Ambank Group and Menara Ambank remains high at 95% to 100%.

One-off gains boost AmFirst’s profits distribution in FY10

However, thanks to some RM1.89 million in compensation for the compulsory acquisition of land fronting The Summit Subang USJ recognised during the quarter, net profit improved to RM10.6 million.

A further RM3.78 million will be recognised evenly in the next two quarters, which should boost total distribution for the current financial year — we estimate at 10 sen per unit assuming 100% payout. That will earn unit holders yields totalling 8.5% at the current price of RM1.18.

Nevertheless, earnings in the following year are likely to be lower in the absence of further one-off gains. As such, we forecast distribution could fall to around nine sen per unit in FY12, which would, nevertheless, still give investors an attractive 7.6% yield.

Although the trust registered positive rental revisions for several of its properties this year, the anticipated supply of office space coming onstream over the next few years would likely keep a lid on the quantum for future hikes.

AmFirst is currently in the midst of acquiring an additional retail lot in The Summit for RM6.8 million but has aborted plans to buy a five-storey building in Cyberjaya. The acquisition is targeted for completion by end-2010.

GAB vs CARLSBG

1. GAB share price created record high each day. :) Look like RM10 is where it is heading to. As the  share price surge higher the DY become unattractive. It used to be high DY around 8+% but after a recent surge of price its dividend has shrunk to a mere 5% based on current price. It is good for those who got it way back when it is still trading around RM4 to RM5, they would enjoy both capital appreciation and share dividend. :) I do hope that the dividend will step up in order to remain as attractive and resilient as before.

2. GAB has a bigger market share in Malaysia comparing to it peer CARLSBG. This will seem create more room for CARLSBG to grow if GAB continue to up surge into RM10 region. Though, CARLSBG's business has seem lose out to GAB in Malaysia but it synergy with CARLSBG(S) has bear fruit so far. :) The EPS has almost on parred with GAB, which i think it is good sign for CARLBG to do a catch up job Q after Q.

3. Make money online - Just received a cheque from Nuffnang for advertisement effort in my blog. Also another network advertising company Innity has made the payment recently. Good enough for lunch money though. :)

Another Good Run Expected !

1. Dow Jone green again today. :) My C also garner another 10c. :)

2. Just gotten my ATRIUM's dividend today. :) In total based on my cost together with DPU collected so far. The total % gain is about 47%. Not bad huh !!!

3. Below is the reference for those who own PANTECH. A very good reference provided from my long comrade hng. Thank you my friend. :)

hng // December 2, 2010 1:41:00 PM GMT+08:00

Pantech-LR is only very little stake in portfolio, compare to two major stocks holding now: PJdev and Uchitech. But, if i opt for full conversion to pantech ICULS, it could be quite substantial though.

Based on current pantech share at 63sen, each ICULS subscription cost at 10sen + 1.65sen pantech -LR = 11.65sen nett cost. To convert to pantech share, have surrender 6 ICULS for 1 pantech share. But the conversion period last for 7year, and each year ICULS received interest payment of 0.7 sen or 6% nett yield based on my cost holding of 11.65sen. In addition, 10 ICULS entitle 1 free warrant which have exercise price at 60sen over a period of 10year.

Upon listing i think, warrant could worth at least 10-15sen, while ICULS should at 11sen if pantech share manage to hold its price above 60sen. All in, current pantech-LR at 1.5-2sen may just generate very modest potential return. Thus, i'll either opt to sell later before ex-right at least 2sen for quick profit or go through whole exercise which have limited upside but ICULS interest payment semi-annual and free warrant could cushion downside risk

Market View

1. Market drop more than 10 points. :( Overall stocks down on Europe's debt crisis where Portugal or Spain may have run into debt problem. Ireland's bailout package also can't stop the down side. This week....one word...."Tough". The Koreans conflict also adding more fuel. :(

2. I have gotten enough of my "dividend" stocks so far. Would not be buying unless it drop to a significant level which make the yield interestingly attractive.

3. Engaging long term approach and DY is still the best. Ignoring the current turbulence. :)

4. What would you do, if market continue to be bearish.....?

5. Year end approaching, will start compiling my portfolio and the % return that i get for this year. :)

6. When there is being nothing to do. Do nothing. :)

Buying or Selling ?

1. Thanks to the sell down. Managed to collect quite substantial ARREIT at RM0.905. Certainly this is not the last, will collect more if price come down further or whenever i can. :)

2. Sold some of my CARLSBG at a price of RM6.00. :) This provide me more capital for scoping. :)

3. Overall Stocks slide on worries over Korea, European debt. :(

4. I would expect more drop come next week. :(

5. PCHEM started it debut yesterday. Not a bad start after all at RM5.72 but just can't beat the selling pressure when market open. Started to slide then before settling at RM5.31. I think the selling force not end as yet. Many is waiting to dispose especially those that subscribing the IPO on loan money.

6. GENM result is expected. Profit drop a bit. Judging the down trend momentum, would likely to settle at around RM3.00 to RM3.20. Nevertheless, this stock remain as bore as before, nothing compare to a more energetic volatile GENTING.

7. Defensive or DY stock is still the best approach irrespective whether market up or down. You still can sleep tight and sound. :) Till then happy trading.

Bravo !! Mr. Market

1. wow !! Market rebounded after a day of sell off due to Korean Conflict. :)

2. Today managed to buy in small amount of ARREIT at 0.905sen. My target still far below. Will queue to buy more tomorrow.

3. Thought can take advantage of the selling force today but too bad the selling pressure is just not greate enough. Will there be more selling tomorrow ??

4. Many have expected market to go down further but instead it caught everyone surprise by defying the selling pressure. Well done market, :) no one can really sure what will happen next. Engaging long term investment and dividend yielding is still the best approach. We can have a sound sleep and peace of mind. :)

Korean conflict, European debt weigh down stocks

Take months to build but take days to fall !!!!!!!

Stocks open lower on concerns about Korean military conflict, European economy

NEW YORK (AP) -- Stocks are falling in early trading after a skirmish between North and South Korea and amid ongoing worries about Europe's debt troubles.

 

Investors were already uneasy Tuesday about Europe's debt crisis after Ireland accepted a bailout this weekend. The concern is that Portugal and Spain may be the next countries to need help.

 

Before stock markets opened, the government reported that the U.S. economy expanded at an annual rate of 2.5 percent in the third quarter, up from an earlier estimate of 2 percent.

 

The Dow Jones industrial average fell 129, or 1.2 percent, to 11,049 in the opening minutes of trading.

 

The S&P 500 lost 14, also 1.2 percent, to 1,184. The Nasdaq composite index fell 27, or 1.1 percent, to 2,504.

 

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

 

NEW YORK (AP) -- Stocks are falling in early trading after a skirmish between North and South Korea and amid ongoing worries about Europe's debt troubles.

 

Investors were already uneasy Tuesday about Europe's debt crisis after Ireland accepted a bailout this weekend. The concern is that Portugal and Spain may be the next countries to need help.

 

Before stock markets opened, the government reported that the U.S. economy expanded at an annual rate of 2.5 percent in the third quarter, up from an earlier estimate of 2 percent.

 

The Dow Jones industrial average fell 129, or 1.2 percent, to 11,049 in the opening minutes of trading.

The S&P 500 lost 14, also 1.2 percent, to 1,184. The Nasdaq composite index fell 27, or 1.1 percent, to 2,504.

Pantech’s corporate exercise should yield positive returns

Pantech Group Holdings (95 sen) is on the final leg of a corporate exercise involving a bonus shares and rights issue of irredeemable convertible unsecured loan stock (ICULS) that also comes with free warrants. The entitlement date has been fixed on Nov 24.

We believe the exercise will offer shareholders positive investment returns over the next few years, underpinned by the company’s expansion plans and earnings growth prospects.

The bonus issue is on the basis of 1-for-5 shares. Shareholders will also be given the rights to buy two ICULS for every Pantech share held (before the bonus issue) priced at 10 sen per ICULS. The loan stock carries a 7% coupon rate with a conversion ratio of six to one, exercisable at anytime within a seven-year period.

As a sweetener, investors will be offered one free warrant for every 10 ICULS subscribed. The warrants have a maturity of 10 years and the exercise price is fixed at 60 sen. Post-bonus issue, Pantech’s shares will be adjusted to 79 sen based on its current price of 95 sen. This implies that the warrants will already be in-the-money upon completion of the exercise.

Decent 7% yield on ICULS

ICULS is somewhat similar to a warrant in that they give holders the right to convert their holdings into shares within the maturity period. However, holders will also earn fixed annual interest income until the loan stocks are converted into equity.

In Pantech’s case, its ICULS carries a coupon rate of 7%. That is a fairly decent yield, compared with current deposit rates. Of course, loan stocks are not risk free. But Pantech’s balance sheet is relatively strong with net debt of RM70.3 million at end-August 2010 or gearing of about 28%.

Plus, its business is expected to fare well over the next few years. We forecast steady double-digit earnings growth for Pantech going forward, following a slightly decline in FYFeb11 (excluding one-off items).

Both the ICULS and warrants will be listed on Bursa Malaysia on Dec 27. Their prices will likely track Pantech’s share price with reference to their conversion ratio/exercise price. For instance, based on current prices, the loan stock should trade at, at least, 13 sen (79 sen divided by conversion ratio of six).

Larger share base will enhance liquidity

Currently, Pantech has issued shares totalling 375 million. Assuming full subscription, the exercise will raise some RM75 million from the ICULS proceeds at the outset. The bulk of the proceeds will be used to fund the company’s expansion plans.

Future conversion of the warrants will raise a further sum of up to RM45 million. Upon full conversion of the ICULS and warrants, Pantech’s share base will be enlarged to about 650 million shares. The larger share capital — in step with its growing business — would improve liquidity and the stock’s attractiveness to investors over time.

Sales recovery, slowly but surely

We are sanguine on Pantech’s longer-term prospects. Sales are recovering, albeit at a gradual pace. Trading sales, in particular, dipped sharply in 2H09 on the back of a slowdown in contracts flow in the domestic oil & gas sector.

But calls for fresh tenders from the national oil company, Petroliam Nasional Bhd (Petronas), have been slowly picking up steam over the last few months. Pantech’s trading sales improved from a low of RM46.9 million in 4QFY10 to RM67.5 million and RM72.2 million in 1Q-2QFY11, respectively — and should continue to rise.

In addition to new deepwater and marginal oilfield projects, Petronas is also investing in enhanced oil recovery, where new technologies are expected to raise extraction rates in existing oilfields on upgraded facilities. Industry players are upbeat that the actual flow of contracts and jobs will gather momentum going into 2011-2012.

Meanwhile, its manufacturing arm is also doing better on the back of improving export orders. Crude oil prices have rebounded convincingly from the lows during the height of the financial crisis. At current levels, around US$85 (RM266) per barrel, prices are supportive of exploration and production activities.

Indeed, despite the weak US dollar, which translates into lower ringgit sales, Pantech’s manufacturing sales increased to RM25 million in the latest 2QFY11 from RM22.8 million in 1QFY11 and as low as RM10.3 million in the previous corresponding quarter.

Sales would gain a further boost from Pantech’s joint-venture deal with Saudi-based Al-Otaishan Trading Group, which paves the way for it to supply state-owned oil and petrochemical companies in the oil-rich country.

Manufacturing expansion to drive future growth

Pantech intends to focus on growing its manufacturing business over the next few years.

At the moment, its plant in Klang manufactures carbon steel pipes and fittings. Once the new manufacturing facility in Johor Bahru is completed — trial production is expected to begin sometime this month — its range will expand to include stainless steel pipes.

Under the next two phases, the product range will widen to encompass stainless steel fittings and eventually alloy-based pipes and fittings, targeted by 2013-2014. By then, Pantech plans to hit RM1 billion in sales, about 40% of which will be from the manufacturing arm, up from 16% in FY10.

In short, we believe Pantech has good upside potential given that prevailing valuations are still low. The stock is trading at just about 8.1 and 6.8 times our earnings estimate for FY11-FY12. Net tangible assets stood at 66 sen per share at end-August 2010.

Hupro Or Not Hupro ??

1. The stock that i intend to make a swap from AMFIRST is ARREIT but just manage to get some of it at 0.905sen yesterday :( still far below my desire target. The price seem reluctant to come down. Will try to buy more tomorrow when the market reopen. :)

2. A friend approach me and asking me, making 10% a week is it sound too good to you ?? wow !! what kind of investment that give such a high return ?? Yes, it is non-other than FOREX. I personally had tried it before since many years back, i still trade on and off even today but it is just not my cup of tea really, reason being is i just do not have time for it. Yes, i believe some may be able to garner such a high return consistently but this is no guarantee stuff here. On invitation, friend ask me to meet his FOREX guru, out of curiosity i step in to this company and being introduced to this FOREX guru so call. The guru show me live trading on the spot and tell me how easy making money is, all the stuff that shown look very familiar to me as mentioned it is not an alien thingy to me when dealing with FOREX.

I wonder what is this company doing here ?? An investment corporation or some thing else (SCAM) ?? as far as i know, Forex is prohibited here. After the session i pressed on my friend asking the real motive of this company. He told me, the company set based here as an IB (Introducer Broker) to Hupro FX an on-line Forex trading brokers based in UK. How does this company making profit being an IB so to speak ?? I more or less get some idea there after flashing back the long chat with that so call Forex Guru. I don't blame my friend as he is still a very greenhorn in investment industry.

Dissect from the conversation with the "Forex Guru", i can roughly guess the entire "Modus Operandi" of this company :-

• They first target to lure job seekers by aggressive marketing and advertisement through newspaper.
• Starting interview the potential job seekers candidate cum investors. (i saw many was waiting to be interviewed when i was there)
• Provide few days of training as described by my friend. I was told by the Forex Guru, even a few days of training is enough to beat anyone with 10 years of trading experience. Gosh !! they are making these newbies or coerce them to believe that they are a "master trader" only with few days of training.
• These "Master Traders" are "put" to get investors like friends or family members to invest by opening an account with them in which the investment will be handled by these so called "Master Traders" under supervision of the company's "Managers" or "Consultants". The more trades you performed the more income or "commission" you get. Not sure how much they get by introducing an investor though ??
• When ask how much is the investment amount?? The investment amount is a whopping 40K minimum. wow!! what kind of investment concept is this ?? This is hell lots of money to an ordinary family. With so many years of Forex trading, i can trade Forex even with a mere USD10....... just think about it dude, with RM40K investment is about 12.8K USD there. Their reason is simple, they don't due with mini account. WOW !! what the hack, investment also got style one, forget about small amount, don't waste my time if you don't have minimum 10K USD, sound like they are telling you off. :) (ain't investment is to make sure every one making money irrespective big or small??). Indirectly telling you that you are not up to my level if you are small fish. wakakakaka
• I suspect the next thing they will tell you once you dumped in that 40K, "Hello friend, your investment burst or hit margin call, you need to put in more fund else you are not up to our level. We have right not to handle you account unless you deposit more fund".

Fellow investors and friends out there, you tell me, Hupro or not Hupro ?? Scam or Not Scam ??

Portfolio Update

1. Sold AMFIRST at RM1.23 today, the batch that i gotten them recently between RM1.18 - RM1.19. Still keeping bulk of it for DPU, and the ex-date is tomorrow. :)

2. My application to PCGB (Petronas Chemical) IPO was not successful. More or less already sense it as the chances of getting it is far worst than MAXIS IPO unless you applied under "Bumi" units than 100% allocation. Good luck to those strike it. :)

3. Tomorrow will make a switch from the AMFIRST's proceed to another counter. Will reveal it once gotten them tomorrow. :)

Golden Agri Q3 net profit rises 41%

SINGAPORE: Commodities firm Golden Agri Resources said its third-quarter net profit rose 41 per cent to US$99 million, led by robust demand for palm oil.

 

Revenue grew by about 43 per cent to US$965 million for the same 3-month period.

Output of palm products expanded 21 per cent from the previous three months to 608,000 tonnes during the quarter.

Golden Agri said that its financial performance also got a boost from higher crude palm-oil prices.

The company added that demand is expected to be well-supported in the medium to long term, thanks to growing consumption of edible oils and fats, particularly by the growing middle class in developing countries such as China, India and Pakistan.

Genting Singapore earns S$188m in 3Q

SINGAPORE: Casino operator Genting Singapore earned a net profit of S$188 million in its third quarter.

The profit in the three months ended September 30 compares with a net loss of S$93 million a year earlier.

 

However, the third-quarter's profit is lower than the S$397 million it earned in the previous three months.

 

Total revenue in the third quarter jumped to S$744 million, compared with S$12 million for the same three-month period a year earlier.

 

But on a quarter-on-quarter comparison, revenue fell from S$979 million in the second quarter.

Genting said Resorts World Sentosa (RWS), home to a Universal Studios theme park, contributed about S$731 million to the third-quarter revenue.

It added that the integrated resort has seen strong demand since it opened in the first quarter of this year.

Going forward, Genting said RWS is well on track to meeting its 2010 visitor target.

Petronas Chemical IPO

1. Stocks are getting pricey each day, so when there is nothing much to do, do nothing. :). When things are getting irrational better be cautious.

2. Today i applied Petronas Chemical's IPO as it is the last day of application. Think applying IPO is the safest for now.

3. Gen SP will be announcing 3rd Q result on 11/11. Hope it is a good one. :)