Pimpinan Ehsan – Cash arbitrage gains on the cards?

Pimpinan Ehsan Bhd (PEB) (Bursa Stock code: 5622)(formerly known as TriPLC Bhd) was in the news for its corporate deal involving the following in sequence:

(i)                  Transfer of TriPLC under Pimpinan Ehsan Bhd - Completed

(ii)                Sale of 100% stake in TriPLC construction business unit to Puncak Niaga - Completed

(iii)               Declaration of special dividend of RM1.95 per share from sale proceeds of TriPLC - Completed

The stock recently went ex-special dividend on 14 June 2018, and currently trading at ex-dividend price of RM0.64 per share. It is currently trading at a whopping 45% discount to net cash per share of RM0.93 per share, which may potentially be distributed back to shareholders should a core business is not found by PEB within a year.

Final thoughts:

Pros: Potential unlocking of share value via dividend distribution catalyst, acquisition of earning accretive business

Cons: Extension of timeline for new acquisition of business thus delay in full realization of share value/narrowing of discount to NTA/net cash per share, Management hoarding cash (low probability), acquisition of value destroying business.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Kretam Holdings Bhd: Potential MGO arbitrage gains? (2)

Yours truly had previously profiled Kretam Holdings Bhd which may be an attractive MGO arbitrage gains play.

The worst possible outcome has occurred for risk arbitrageurs in Kretam Holdings Bhd where due diligence results were not acceptable to the buying party, Hap Seng Plantations and share sale agreement was terminated with immediate effect.

Prices of Kretam Holdings may fall back to pre-share sale agreement levels or even lower due to perceived weakness from adverse due diligence results. This ends any remaining chance of potential risk arbitrage gains.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Kretam Holdings Bhd: Potential MGO arbitrage gains?

On 21 February 2018, Hap Seng Plantations (HSP), a bursa listed plantation company announced that a share sale agreement was entered between the major shareholder of Kretam Holdings Bhd and the company to purchase a combined stake of 55% share in Kretam Holdings Bhd. Completion of the share deal would see Hap Seng Plantations extending a mandatory general offer for all remaining 45% share stake in Kretam Holdings Bhd, where investors are able to sell their shares at the offer price of 92 sen per share without restriction to HSP.

Several conditions are required to be fulfilled, namely Hap Seng Plantations shareholder approval for the share purchase.

Currently the company is undertaking due diligence exercise on Kretam Holdings, and extension has been sought for finalization of due diligence.

The delay in completion of due diligence has made investors jittery, fearing that a deal could not be reached and slashing any hopes for an MGO to buyout all other shareholders at 92 sen offer price. Sharp selldown was seen on 4 June 2018, where prices plunged 20% to close at 62 sen per share, a huge 48% discount from the offer price. Prices rebounded slightly to close at 66.5 sen per share the next trading day on 5 June 2018 after clarification was made to the media that due diligence exercise is still ongoing.

Should the deal is officially cancelled, prices could plunge further to its 52 week low of 52 sen per share a strong support where its price has been hovering above these levels for whole of 2016 and 2017, a 23% loss from current share price. Investors could potentially benefit on the upside of ~40% as any deal is very much alive currently.

Final thoughts:

Pros: Reward to risk ratio of ~2:1, large upside gains of ~40% for a deal that could work out in 6 – 12 months.

Cons: Extension of timeline for deal completion, adverse findings in due diligence results resulting in lower offer price or total cancellation of share sale agreement.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Hovid Bhd: Potential coattail gains?

Hovid Bhd was recently in the corporate news for having a VGO exercise launched by its major shareholder with the backing of a private equity (PE) partner.

Its financials are slowly recovering, with its most recent quarterly financials ended 31 March 2018 recording a turnaround back to profitability since the license suspension of its drug manufacturing activity.

With the price reference of 38 sen per share as per the entry price of the PE partner, another round of offer may be launched to take the firm private for the final time, but all these are speculative currently as no firm plans is on the cards to rectify the public shareholding spread issue. The current spread between the 38 sen last anchor price and current ask price of 33 sen is a sweet 15%, but by no means will narrow anytime soon.

Judging by the performance of last 3 financial quarters, a return to annual profitability could potentially provide strong fundamental support to its share price where P/E multiples are normalized.

Final thoughts:

Pros: Strong institutional shareholder price anchor at 38 sen per share.

Cons: Failure of operational turnaround and continued losses due.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Stock “Highlights” – 2017 Year End Review

Scorecard for 2017 stock highlights as follows, where returns for 2017 stock picks underperformed 2016 ones. Time to move forward to 2018!

Stock	Entry Date*	Exit date	Entry Price*	Exit price	Dividend + Capital Repayment	Total Return (%)	Note
Red Sena	14-Jul-17	31-Dec-17	0.455	0.470	-	3.30%
Insas-PA	19-Jul-17	31-Dec-17	0.970	0.955	0.02	0.52%
					Average	1.91%
* Next Bursa market day based on the date blog post is published with closing price approximate entry price

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.

Insas – PA – Defensive High Yield Preference Share?

Investors looking for some high yielding instruments may consider Insas-PA listed on Bursa Malaysia (Code 3379PA). It is a preference share issued by mother company Insas Berhad, a mini conglomerate with a collection of stakes in various companies such as the high flying Inari Bhd.

The key investment merit from Insas-PA comes from its expected dividend distribution and mandatory redemption by the company. There are 5 more dividend distribution cycles in which holders of Insas-PA will be getting RM0.02 per share for another 5 rounds all the way till beginning of 2020 which comes to a total of RM0.1 per share. At maturity which is expected to be in end February 2020, the preference shares will be redeemed at RM1 per share.

Should investors able to purchase the preference share at RM0.965 or RM0.97 based on best ask prices, you can expect to gain a little over 13% over the course of 2 years and 7 months, which works out to be a little over 5% per annum of investment yield.

Investors should take comfort on the financial strength of Insas Bhd where last check on its March 2017 quarterly report, it has a healthy net cash balance of over RM240 million, way above the expected dividend and redemption payout of about RM132 million.  

Pros: Healthy above average yield, backed by healthy balance sheet

Cons: Funds lockup, need to hold to maturity to fully realize gains

Note: This is not an investment advice. Buy and sell any securities at your own risk.

 
Disclosure: None.

Red Sena : Safe Haven in times of turmoil?

Red Sena, an F&B SPAC listed on Bursa Malaysia (Stock Code: 5270) is currently sitting on 371m cash trust proceeds. Similar to the Reach Energy, shareholders who vote against the acquisition of a business concern identified by management are entitled to their share of cash trust proceeds.

Cash trust currently owing to public shareholders amounts to RM0.464 per share, a tiny 2% discount against the current ask price of RM0.455.

Shareholders can only expect FD like returns ranging from 3-4% per annum net that comes with potential for solid acquisition targets. Downside for shareholders is protected with the right to reject any deal that is deemed expensive or businesses that has murky future outlook.

Investors may diversify into this unique situation-based stock. With stocks riding high every day and solid undervalued gems ever harder to be found, investors may park their cash in this stock in the event of a widening discount against cash trust per share.

Note: This is not an investment advice. Buy and sell any securities at your own risk.

Disclosure: None.