Friday, June 02, 2006

Astro & Scomi Covered Warrants
An Early Valuation

Both are decent companies, but Scomi would be more exciting and should have a much higher beta (volatility) which bodes better as a covered warrant. Astro's growth and prospects appear limited from here on with the exception of its Indonesian ventures (which is still in a shambolic stage still). The thing to be very careful here is that these covered warrants only have an 8 month to expiry period, pretty short, so the timing is very crucial here. Once the bull rears its head, these covered warrants will fly because the premium is very low while the gearing is pretty good. The reverse will occur should there be market weakness but if you get in early (e.g. below 30 sen), your downside is limited by the absolute price. Don't think these CWs will fall below 20 sen for Scomi and 25 sen for Astro unless the index craps below 850. As cynical as it may sound, it is highly likely (and in the long term interest of) the lead managers will try to ensure that these early batches of covered warrants do perform well (as best they could without flouting the laws). By ensuring that, it will serve them well as an expanding and enlarging franchise, and revenue stream. While I am not suggesting outright manipulation... but there are one hundred and one ways to skin a cat (think fund management, research, special placements, etc...).

Astro CW
Terms - 2 CW for 1 Astro share
Exercise Price - RM4.65
Current Share Price - RM4.80
Current CW Price - RM0.27
The premium would be = (0.27 x 2) + 4.65 / 4.8 = 8.12%
Gearing (Leverage) would be = 4.80 / (0.27 x 2) = 8.8x

Scomi CW
Terms - 1 CW for 1 Scomi share
Exercise Price - RM1.15
Current Share Price - RM1.20
Current CW Price - RM0.22
The premium would be = 0.22 + 1.15 / 1.20 = 14.1%
Gearing would be = 1.20 / 0.22 = 5.45x

Naturally the Scomi CW looks more expensive with a higher premium and much lower gearing than Astro CW. Both are actually "cheapish" for now. All things being equal (with no price fluctuations) Scomi CW should be fairly valued at RM0.24 (compared to the current price of RM0.22). While Astro CW should be fairly valued at RM0.33 (compared to the current price of RM0.27). The market has priced the Astro CW too cheaply, even after taking into account the lesser stock volatility. Even if you take in the prospects, the Astro CW is still too cheap.

4 comments:

Aragorn said...

hi brudder,

your font is too small la dei

make your font bigger boleh

?

CM said...

The price as of 7-6-06 is,

Scomi-CA 0.17
Astro-CA 0.215

Isn't this much cheaper compared to what you said cheapish earlier on? So is now the best time to buy? I foresee i will dip lower given the current sentiment.

Salvatore_Dali said...

cm,

this is the kind of talk no remisier of institutional sales want to hear... you make a call and the price falls, can we safely say we can buy at the lowest all the time, of course not, unless i write to change my mind, the recommendation stays, so you get it even cheaper, how can i tell you when is it the cheapest... like i used to tell my clients, if i can tell you that, you shouldn't call or talk to me, you should light some joss sticks for me cos i'm truly god...

CM said...

hi dali,

:) You are right, no one knows tomorrow. Thanks for all your analysis in this blog though...