Really Good Pocket Money
I don't have much knowledge in accounting matters, but I find an article from a blog called Serious Investing very enlightening, at least to me.
It is about free warrants.
I have received free warrants before. Tambun Indah gave free warrants
for those who subscribe to its rights issue. I have to fork out money to
subscribe to its rights issue. I can choose to subscribe or not to
subscribe. If I don't, I don't need to spend more money but I am not
entitled to the free warrants.
Now only I realize that there are really "free" warrants. This means
that I will get the warrants without paying any extra money.
Even though the mother share price will be adjusted accordingly after
the ex-date of free warrants, those who get the free warrants are almost
guaranteed to gain due to the speculative nature of warrants trading.
The example given in the said article is Instacom.
Instacom gave free warrants without rights issue attached to it in
August with 1:1 conversion at 33sen. On the ex-date (27th Aug), its
mother share was traded last at 38sen.
From my calculation, after the ex-date, its mother share should be
adjusted to 36sen, and its warrant value should be 36-33= 3sen. I'm not
too sure whether this is correct as after ex-date, mother share closed
at only 29sen and later warrants closed at 11sen on the first day.
IF my calculation is correct, though mother share dropped from 36sen to
29sen (-19%), the warrants increased from 3sen to 11sen (+270%).
This may explain why just 3 days later, Instacom director Mr Ngu started to dispose all his warrants at around 11sen.
Another director Ms Anne is perhaps smarter, she only came into action
after the warrant price started to spike above 15sen level in end of
October. She started to dispose all the warrants from 7th Nov, average
selling price at 15-18sen.
In responding to queries from The Borneo Post, Anne Kung said that she
did not sell her shares and is still managing the company. Her sale of
warrants only came after the Budget 2014 announcement because there was a
certain spike in interest in the company, and she thought it was an
opportune time to pocket some money.
All those warrants are obtained absolutely free without paying a single sen. So it's a handsome pocket money indeed.
As far as I know, warrants are a way to raise money for the company. If
the company needs money in the near future, it will not issue warrants
only as I think not many people will want to take out their money to
convert them to mother shares until the expiry date is near.
If the company really need money, they will issue rights. To encourage
shareholders to subscribe to the rights, they will give free warrants.
Apparently Instacom is not in urgent need of fund, as it only gave free warrants and the warrants will only expire in year 2018.
What do you think is the purpose of this free warrants?
The executive directors did not want to hold a single warrant of their own company. They are not keen to put more money in. They sold for immediate profit.
The executive directors did not want to hold a single warrant of their own company. They are not keen to put more money in. They sold for immediate profit.
Instacom price chart
Anyway, there is no right or wrong. They are not against the laws. It is for investors to judge.
It does not mean that the management is bad or dishonest by giving free
warrants like this. A lot of small shareholders are happy with their
gain as well.
For me, I think I have to take another look at Instacom.
Instacom: Flat But Great
Instacom FY13Q3 Financial Result
| INSTACOM | FY13Q3 | FY13Q2 | FY13Q1 | FY12Q4 |
| Revenue | 36.4 | 36.3 | 30.2 | 20.0 |
| PBT | 7.7 | 7.6 | 7.0 | 7.0 |
| PBT% | 21.2 | 20.9 | 23.2 | 35.0 |
| PAT | 7.8 | 7.7 | 6.8 | 6.5 |
| Total Equity | 160.1 | 152.4 | 144.7 | 137.7 |
| Total Assets | 266.8 | 266.3 | 256.8 | 253.7 |
| Work progress | 27.7 | 27.5 | 29.2 | 34.4 |
| T/Receivables | 69.6 | 55.0 | 52.5 | 32.3 |
| Inventories | 4.8 | 4.1 | 3.6 | 3.0 |
| FD pledged | 11.3 | 11.0 | 10.4 | 13.5 |
| Cash | 13.5 | 7.6 | 7.3 | 1.4 |
| Total Liab | 106.7 | 113.8 | 112.1 | 115.9 |
| T/Payables | 19.6 | 24.3 | 15.8 | 17.4 |
| HP Payables | 2.3 | 2.5 | 1.9 | 2.2 |
| LT Borrow | 9.6 | 10.1 | 20.5 | 19.9 |
| ST Borrow | 69.0 | 69.7 | 65.2 | 70.1 |
| Net CF | 4.1 | -1.9 | -2.1 | 13.9 |
| Operation | 6.8 | 18.2 | 2.1 | -15.9 |
| Investment | 10.9 | 8.3 | 0.8 | -12.6 |
| Financing | -9.5 | -28.4 | -5.1 | 42.4 |
| EPS | 1.11 | 1.09 | 0.97 | 0.99 |
| NAS | 0.23 | 0.22 | 0.21 | 0.34 |
| Net D/E Ratio | 0.41 | 0.47 | 0.54 |
Instacom posts a flat but good FY13Q3 result, with revenue, PBT &
PAT almost the same compared to its preceding quarter. Its profit margin
stays at above 20%.
As long as the profit does not fall, it is good enough for me.
Besides, its cash has increased while total borrowings reduce slightly, giving it a lower net debt/equity ratio of 0.41.
After nearly one month of turmoil in Instacom counter, which saw its
share price fell from 35sen to 25sen, finally the cloud does settle to a
certain extent. However, I still wish to know more about the RM205mil
project award in mid 2013.
For the whole FY2013, Instacom's net profit may reach RM30mil, giving it
an EPS of 4.27sen, or PE of only 5.9x at current share price of 25sen.
Its fair value may be 43sen base on PE of 10x.
Instacom's strength is its specialty in telecommunication
infrastructures field, but its weakness is lack of diversification in
its business. It may have trouble if less projects are awarded to it in
the future.
I think Instacom FY2014 prospect will still be good, if the government
does not delay its roll-out of high-speed broadband, building more
transmission towers and underwater cables.
I may start to accumulate Instacom shares, if its share price does not shoot up too much.
51sen To 29sen?? R U Sure?
Instacom is the stock that RHB Research promotes heavily this year. It
gave it a target price of 51sen on 30 Sep 2013, which represented a 85%
upside from its share price.
After less than 2 months, the target price is pared down spectacularly to just 29sen!
RHB must have their reasons I guess.
RHB Research 19 Sep 2013
Instacom's FY13Q3 financial results is still yet to be released, and it
is widely believed to be a decent one. After 3 quarters of excellent
performance, it is unlikely that the upcoming result will drop markedly.
Furthermore, Instacom has received a letter of award worth RM205mil in
May. It was mentioned in Instacom announcement that it will contribute
to its earning from FY2013 to FY2015.
From Budget 2014, the government will also spend and build more telecommunication towers in East Malaysia next year.
From Budget 2014, the government will also spend and build more telecommunication towers in East Malaysia next year.
Its CEO Anne Kung has just been awarded Sarawak Entrepreneur of The Year a few days ago!
Talk Is Cheap
Everything seems good and nicely in place, but when things start to turn
to the wrong direction, we can always dig out of a lot of negatives.
Why do the executive directors dispose their warrants & shares in the company?
Why is there still no further news regarding the RM205mil award? An
agreement is still needed between both parties before the work can
start. Now it is already end of year 2013.
Why did its previous auditor Messrs. Chong & Co. want to resign in early October?
Why don't the directors clear the cloud when purposely contacted by RHB?
Why did RHB say that the directors were unable to provide satisfactory
explanations? What did the directors actually say?
Why do RHB downgrade Instacom to such an extent after hearing the directors' explanation?
I still believe that Instacom upcoming FY13Q3 result will be good.
However, its long term prospect and credibility are hanging by a thread.
If current panic selling is proven to be wrong later, then it will be an
opportunity to maximize profit from investing in Instacom.
But who knows? It is better to be more cautious.
What Happen In Instacom??
The two most important persons in Instacom, Mr Ngu & Ms Anne Kung
are disposing Instacom shares and warrants for the last 2 months!
It started with Ngu who first disposed the warrants just 2 days after
acquiring them at 14.52% in September 2013. In early Oct, Ngu has got
zero warrants.
Warrant may not be important as it does not represent shares in the
company, is not entitled for dividend and need extra cash to convert it
into company share. Perhaps the director want some cash urgent.
Furthermore, with the conversion price of 33sen, the warrants are
currently trading at a positive premium. So he may think that the
warrants do not worth the current price.
However, besides the warrants, Ngu also disposed his ordinary shares as
well since early Oct, paring down his stake in Instacom from 14.52%
acquired during the reverse take-over exactly one year ago, to 8.4%
yesterday.
Anne Kung & Ngu
Now Anne Kung joins in since one week ago in early Nov 2013. The CEO has
reduced her warrants substantially from 14.52% to 1.8% in just one week
time.
It seems like both of them have not finished yet.
The executive directors know the company inside out. If they know that
the company will post an impressive quarterly result this month, or able
to sustain its earning in the near future, it is quite impossible for
them to throw their shares and warrants substantially at this time.
Initially I think that Instacom is worth at least 40sen if it can
maintain its earning in the first 2 quarters of FY2013. However, I am in
doubt now.
Thus, I won't touch this stock until the release of FY13Q3 results, and
will probably downgrade it from my stock watch list to stock alert list
later.
Are they using the money to buy other company like Dato Thong of Inari? I don't know.
But if Anne Kung starts to dispose her ordinary shares, then ...
Instacom vs OCK vs RA
Currently there are 3 companies listed in ACE market that are involved
in telecommunication infrastructures design, build, upgrade and
maintenance work. With the ever increasing demand of higher mobile data
& internet speed, these companies are expected to reap some benefits
in the future.
Instacom Group (listed Oct 2012) & OCK Group (listed July 2012) are
the main players which generates consistent revenue & profit, while
R&A Telecommunication Group is not doing well.
Between Instacom & OCK, who is better? If you ask Instacom this
question, surely it will tell you that it itself is better, so is OCK.
Lets check the balance sheet of the latest financial period ended 30th June 2013 for all 3 companies.
For market capitalization, both Instacom & OCK are quite close with
about RM200 million, while RA is way behind at RM39.6 million.
| Instacom | OCK | RA | |||
| Share price (24/9/13) | 0.285 | 0.705 | 0.045 | ||
| Total shares (mil) | 702.2 | 284.9 | 879.0 | ||
| Market cap (mil) | 200.1 | 200.9 | 39.6 | ||
| Net asset/share | 0.22 | 0.24 | 0.10 | ||
| Total Assets (mil) | 266.3 | 149.9 | 113.4 | ||
| Total Equity (mil) | 152.4 | 63.4 | 84.7 | ||
| Total Liabilities (mil) | 113.8 | 86.4 | 28.7 | ||
| Total Borrowing (mil) | 80.8 | 59.5 | 11.1 | ||
| Current | 70.7 | 41.7 | 10.2 | ||
| Non current | 10.1 | 17.8 | 0.94 | ||
| Cash | 7.6 | 7 | -9.6 | ||
| Debt/Equity ratio | 0.52 | 0.94 | 0.13 | ||
| Dividend yield (%) | 0 | 1.4 | 0 | ||
The NTA for both Instacom (22sen) & OCK (24sen) are also quite
similar. However, debt to equity ratio for Instacom (0.52) is much
better than OCK (0.94), which means OCK raises most of its business fund
through interest-bearing debts rather than from shareholders.
Only OCK paid dividend for FY2012, which is 1sen per share, or 1.4% yield at share price of 70.5sen.
For financial performance, since we only have 3 quarters of results for
Instacom now, I will only compare the latest 3 quarterly financial
results for these 3 companies.
| RM mil | Instacom | OCK | RA | |||||
| Rev | PAT | Rev | PAT | Rev | PAT | |||
| FY12Q4 | 20.0 | 6.5 | 36.2 | 3.8 | 6.9 | -0.3 | ||
| FY13Q1 | 30.2 | 6.8 | 30.6 | 2.2 | 4.2 | -3.1 | ||
| FY13Q2 | 36.3 | 7.7 | 33.3 | 2.6 | 7.7 | 0.9 | ||
From the table above, it is clear that RA is having a hard time. For
Instacom, its revenue and net profit are in an increasing trend, while
OCK is up and down. Instacom has caught and even surpassed OCK for its
most recent revenue.
The net profit margin for Instacom is quite remarkable, which is 20-30% for the last 3 quarters. OCK PAT margin is just 7-10%.
Anyway, OCK is not purely a "telecommunication infrastructure" company.
It also involves in green energy & power solution and mechanical
engineering service business. For FY13Q2, its telecommunication segment
which generates higher margin contributes 61% of total revenue and 81%
of total net profit.
To compare the EPS and PE ratio of these stocks, I will estimate the
FY13Q3 results using the average of past 3 quarters. With this
calculation, the FY13Q3 net profit for Instacom, OCK & RA will be
RM7mil, RM 2.9mil & RM-0.8mil respectively. Thus the estimated last 4
quarters net profit will be RM28mil, RM11.5mil & RM-1.7mil.
| Instacom | OCK | RA | |||
| Est net profit 4Qs | 28.0 | 11.5 | -1.7 | ||
| EPS (Sen) | 3.99 | 4.04 | -0.19 | ||
| Share price (24/9/13) | 0.285 | 0.705 | 0.045 | ||
| PE | 7.1 | 17.5 | N/A | ||
It seems like Instacom is undervalued and OCK is over-valued at the
moment. If given a fair PE of 10x, Instacom's target price should be
40sen.
Of course this kind of earning estimation may not be accurate. Instacom
seems to be in a growing mode and probably will earn more next quarter.
OCK may produce some surprise as it has successfully put a leg into
Myanmar market.
For jobs in East Malaysia, apart from Weida, Sarawak-based Instacom may
have the winning edge for logistic reason. For jobs in West Malaysia, it
is for all to grab.
At the moment, it looks like Instacom has a better prospect compared to
OCK. Anyway, if you think that such business is worth investing in, you
should invest at your own risk.
Instacom: Your Tower of Strength?
After completed the reverse takeover of ACE market listed IPower in 8th Oct 2012, Instacom is aiming for a big future.
Instacom is a Kuching-based one-stop service provider to
telecommunication players. It started its business since 2001 and is
currently listed in ACE market wearing IPower's shell. Its business
involves providing total solution for infrastructure development for
mobile phone operators in Malaysia.
Among Instacom ambitious plans include:
- To build a 3176.4km fibre optic cable network that link the entire peninsular Malaysia in 3-5 years time.
- Phase 1: Johor (705km), Kedah (188km)
- Phase 2: Perak (315km), Selangor (158km), N Sembilan (148km), Melaka (43km)
- Phase 3: Pahang (215km), Terengganu (260km)
- Phase 4: Kelantan (340km), Kuantan-Selangor (275km)
- To lease the fibre network to multiple telcos to generate long term income stream without futher increasing the working capital.
- To participate in the submarine fiber optic cable project between Johor-Singapore (24km submarine fibre & 48km land-based fibre)
- To set up tower REIT (to build and lease telecommunication towers to telcos to generate consistent income).
- To make at least one acquisition by year end of 2013 to expand its business.
- To achieve RM300 million revenue by year 2015.
- To expand to overseas. In Oct 2012's news, it claims to be invited by ZTE & Huawei to install telecommunication equipment in Philippines, Cambodia & Vietnam, as well as to jointly undertake telecommunication projects in Australia & New Zealand.
- To transfer to Main Board soon with the inclusion of institutional investor. (Instacom has fulfilled criteria for main board transfer)
A plan is just a plan, how far can Instacom materialize its plan?
Here are some positives on Instacom's future:
- Recent report by Ericsson foresees mobile data volume to rise by a CAGR of 50% from 2012 to 2018.
- Instacom's regular clients include Maxis, Digi, Celcom, Huawei, Nokia Siemens & Ericsson. (claims to be the only one in Malaysia to have all major telcos as its clients, but what about OCK???).
- Surely you can feel that there is more demand for high speed mobile data and internet in the country.
- 4G/LTE roll-out is at infancy state in Malaysia and latest 5G coming soon at developed countries.
- Build and lease of fibre network and telecommunication towers may be the trend as it can help to reduce telco's capex greatly.
- Secured a RM205 million contract for telecmmunication infrastructure works in Sarawak in May 2013, which will be realized from FY2013 to FY2015.
Instacom's revenue & net profit are in a good uptrend since 2010. However, I'm not sure about FY2012's net profit.
| RM mil | Revenue | Profit | ||
| 2010 | 47.4 | 3.5 | ||
| 2011 | 87.7 | 10.0 | ||
| 2012 | 93.1 | ? | ||
| 1H2013 | 66.5 | 14.5 | ||
Instacom's revenue & net profit for the last 3 quarters since
reverse takeover of IPower are also in an increasing trend. Thus, it is
on track to achieve a good record year for its FY13. However, it may
have quite a steep ladder to climb to achieve RM300 million revenue in 2
years time, unless it really goes for business acquisition.
The soul behind Instacom: Kung & Ngu
While it has injected a huge asset into IPower since 8th Oct 2012,
Instacom also brings along RM90 million debts and RM14.9 million cash.
After 3 quarters, both debt and cash drop to RM79.8 million and RM7.6
million respectively, where 87% of the debt is short term debt.
Currently its debt to equity ratio stands at 0.52. With limited cash in
hands & heavy capex, Instacom may not be expected to pay dividend in
the near future.
Instacom has just given away one free warrant for every 2 shares in the
end of Aug 2013. The warrant conversion price is set at 33sen. If the
current earning trend continues, Instacom may register a net profit of
at least RM30mil for its FY2013. This will give an EPS of 4.27sen base
on 702 million of ordinary shares. With this, PE ratio will be 6.5x
using the share price of 28sen. If the warrants are fully converted,
then the total shares will be 1054 million and EPS and PER will be
2.8sen and 10x respectively.
For a company with decent growth prospect but no dividend guarantee, would you put your money into it?
Anyway, recent share disposal by one of its main director Mr Ngu does raise some eyebrows.
没有评论:
发表评论