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Wednesday, 11 November 2015

Basic Sharing on Warrants

Call/Put warrants are being traded due to their leveraging concept in nature. Leveraging means they share exactly the same risk with derivatives. FYI, call/put warrants are created by Structured and Derivatives Department. Leveraging means you trade using a fraction of the mother price to control exactly the same market value.

A lot of investor mistakenly thought that low upfront capital means suitable for new investors with limited capital to start with. It is a very wrong concept. Leveraging concept in a nutshell means it MAGNIFIES YOUR WINNINGS AND LOSSES AT THE SAME TIME! It is for professional traders and not newbies.

I would like to touch few financial jargons which you may seldom/may not be using when you are trading warrants. Not to scare you guys but to point out the complexity and technical skill required to trade warrants.

Delta Value:
Delta = Change in warrant price / Change in underlying share price.
Meaning how many % the warrant price change vs the changes of the mother price. You need a higher delta so that when the mother price moves, the warrants will moves in a higher %

Effective Gearing (Very important)
= Gearing X Delta Value
% change of price of warrant vs the change of 1% in the mother price. You need a higher EG to have a meaningful fluctuations of warrant price.

Implied Volatility
It is a probability/estimation of future prices, rather. The higher IV, the probability of warrants futures price moves in tandem with mother price will be correlated. Higher IV, the better.

How to combine and use this few parameters?
1st Choose the warrant which has a longer expiry dates (theta value)
2nd Choose higher Delta, EG and IV compare to peers
3rd Do not choose illiquid shares as the Issuer will do arbitrage trading
4th Do not trade if you are no good. Do paper trade and buy mother share instead.

Case Study: MRCB vs MRCB WA
Step 1 Calculate the Basic Intrinsic Value:
Mother / Underlying Price = 1.41
Warrant Price = 0.22
Exercise Ratio = 1 to 1
Exercise Price = 2.30
Breakeven price = 2.52
Moneyness = OTM 38.7%
Option Style = American
Expiry Date = 18 Sept 2018

Exercise Ratio is 1 to 1.
Buy 1 warrant at RM 0.22 (you have the right to convert become mother share from the date issued until expiry date – that is American Style. For European style can only be exercised after expired in 2018)

Case study:
Buy 1 Warrant at 0.22 and Add Exercise Price 2.30 = 2.52 (total cost of owning the mother price that worth 1.41 now (it is called dumb)
Moneyness is Out of The Money 38.7%
Exercise Price 2.30- 38.7% = 1.4099 / 1.41
Means you are buying at the price of 38.7% higher than the market price (it is also dumb)

Step 2: Input the IV, EG, Delta, Theta
It is for forecasting purpose
1. Check and test the similar wa for bench mark to find the most value for money
eg. CA CB CC CD
2. Do back test to check their IV, EG, Delta Theta for all the warrants for one mother share
3. Do a back test to check the Mother Price for the past 3 to 5 years on their price movement and correlation between Mother Price and Warrants
4. Set your entry price, if the Warrant touches your entry price, execute, if not ignore and find other warrant.

Tuesday, 10 November 2015

Kungfu Penta

1.       Company’s Management
Ex CEO Tan Boon Teik resigned and disposed his 3.997m shares on 23 June 2015. Another announcement filed with Bursa stated the total 3.997m shares were acquired by Mr. Chuah Chong Ewe. One thing I like about the management is they file the relationship of the shareholders. I perceived that there is a Management change in Penta although the shareholders are related. The price did went up for awhile from 0.75 to 0.90 then soften back. Perhaps it might due to the feel good factor of new CEO. 








2.       Business Analysis
Semicon and exports related has been doing good this year. I expect the Penta's price should be OK for the rest of this year. Revenue / Profit expected to be stable for 2015 due to the other income gains reported in the Latest Quarterly Report. 

For normal fundamental analysis, as long as Current Quarter is better than Previous Quarter means good? Theoretically yes. But under Good Accounting Analysis, we prefer to look at Current Quarterly Report VS Last Year Quarterly Report. For Penta, it is 5.4m for Q3 2015 vs 2.0m for Q3 2014.
We minus out the 2.6m from other income means it is left with 2m plus profit. Slightly better compare to Q3 2014. Neutral.



3.       Financial Statement Analysis
Income Statement
Profit Margin   : 14% pass (<5% fail)
Interest Cover  : 17x pass  (<3x fail)
Profit for the past 3 years  (pass)

Balance Sheet
Current Ratio   : 1.91 pass (<1x fail)
Debts to Equity Ratio : 0.44x pass (>3x fail)

Cash Flow
Positive at least 1 year: Pass


4.       Pricing Analysis
Price to Earnings – Q3 2015 is a inflated by the one off gain. To reflect a better valuation, ill use Q1 and Q2 and annualized it. 
(1.31 + 2.44)2 = 7.5
P/E = 0.795/7.5 = 10.6x (acceptable)

Price to Book Value – 1.49x (not cheap)


Penta's Management's Comment on her Latest Quarterly Report:

Pentamaster is expected to benefit from Origo's platform to showcase the new venture given the huge potentials from growing IoT concepts.
Subject to the external market conditions and macroeconomic factors, the overall business performance in 2015 remains promising with better cost structure and wider sales base.

Conclusion:
Penta pass all the Financial Health Analysis Ratios and the Price appear to be acceptable but not cheap. Things we need to put in consideration:

 1. New CEO appointment. We are not aware of his Management style and track record.
2. Venture into new field of development.
3. Placement of 10% to new investor whom we are not sure of his background and profile.

As I am expecting a weaker RM vs USD, it should benefiting her for the next 1 or 2 quarters. I am willing to nibble a little bit for Penta but putting a cautious view and constant monitoring. 


Please like us at our facebook page - Bursa Blue Ocean and complete the survey form and join out telegram group chatroom!
Sincerely,
Humble Pie
Disclaimer and Declaration
The information is meant for the members of Bursa Blue Ocean (BBO). Disclosure and distribution of the message without the permission of BBO is prohibited. The full content of the article and write ups are for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss.




Monday, 9 November 2015

9 Nov - 13 Nov Market Outlook “Weakening Ringgit & Lower Crude Oil Continue to Pressure The Market

Weekly Trend: Sideway with downward bias
 
The FBMKLCI closed at 1685.7 after a light rebound from its recent low 1659 level. The USD/MYR exchange rate quoted at 4.36 after a spike seen during Friday night which it's now approaching to previous high 4.48 level. In addition, the Crude Oil price extended its three straight day losses which could further pressure our local market sentiment. This week we re-select export related counters as our sector in focus, meanwhile we are also looking into some oversold counters.
Support: 1659
Resistance: 1727
 
Sector in focus: Export related Counters
 
Stocks to watch:
 
Last week (2/11-6/11)
PESTECH TP:7 SL:5.90 (Reached TP, remain) 
SUNCON TP:1.45 SL:1.25 (Remove)
HOHUP TP:1.10 SL: 0.95 (Remain)
OLDTOWN TP:1.43,1.50 SL:1.25 (Reached 1st TP, remove)
FGV TP:2.30 SL:170 (Remove)
MITRA TP:1.42 SL:1.18 (Remove)
MYEG TP:3.30 SL:2.71 (Reached TP, remove)
SUPERMX TP:2.50 SL:2.17 (Remain)
TUNEPRO TP:1.58 SL:1.38 (Remove)
SUNWAY TP:3.20 SL:3.05 (Triggered SL, remove)
JAKS TP:1.34,1.43 SL:1.11 (Remain)
 
**This week (9/11-13/11)**
PESTECH TP:7 SL:5.9 
HOHUP TP:1.1 SL: 0.95
SUPERMX TP:2.5 SL:2.22
JAKS TP:1.34,1.43 SL:1.11
AEMULUS TP:0.67 SL:0.53
DSONIC TP:1.80 SL:1.45
PENTA TP:0.84,0.9 SL:0.76
SCICOM TP:2.1,2.2 SL:1.98
HOMERIZ TP:1.23 SL:1.06
 
 
 
Price as at Monday closing 9 th November:
 
 
 
Please like us at our facebook page - Bursa Blue Ocean and complete the survey form and join out telegram group chatroom!
 
Sincerely,
Bursa Blue Ocean (by MIVCO)
 
Disclaimer and Declaration
 
The information is meant for the members of Bursa Blue Ocean (BBO). Disclosure and distribution of the message without the permission of BBO is prohibited. The full content of the article and write ups are for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss.

Sunday, 1 November 2015

2 Nov - 6 Nov 2015: Market Outlook “Weakening Malaysia Ringgit Continue to Pressure the Stock Market

Weekly Trend: Downtrend

The FBMKLCI closed lower at 1665.71 last Friday after the violation of 1700 psychology level on 27th October. This week, Bursa Malaysia is likely to consolidate with downside bias.
Support: 1660, 1630
Resistance: 1700-1720
Sector in focus: Export related Counters
Stocks to watch:
Last week (26/10-30/10)
ENGTEX TP: 1.22, 1.30 SL:1.10 (Remove)
✅PESTECH TP:6.40, 6.50 SL:5.90 (Remain)
✅SUNCON TP:1.45 SL:1.25 (Remain)
✅HOHUP TP:1.10 SL: 0.95 (Remain)
✅OLDTOWN TP:1.43,1.50 SL:1.25 (Remain)
✅FGV TP:2.30 SL:170 (Remain)
PMETAL TP:2.69 SL:2.07 (Remove)
✅MITRA TP:1.42 SL:1.18 (Remain)
✅MYEG TP:3.30 SL:2.71 (remain)
**This week (2/11-6/11)**
👉🏻SUPERMX TP:2.50 SL:2.17
👉🏻TUNEPRO TP:1.58 SL:1.38
👉🏻SUNWAY TP:3.20 SL:3.05
👉🏻JAKS TP:1.34,1.43 SL:1.11
Please like 👍🏻 us at our facebook page - Bursa Blue Ocean and complete the survey form and join out telegram group chatroom!

Sincerely,
Bursa Blue Ocean (by MIVCO)

Disclaimer and Declaration
The information is meant for the members of Bursa Blue Ocean (BBO). Disclosure and distribution of the message without the permission of BBO is prohibited. The full content of the article and write ups are for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss.