Hai Leck

(08-11-2010, 08:08 PM)yeokiwi Wrote:

(08-11-2010, 07:09 PM)cfa Wrote: Just curious, Why are people buying warrants @0.05 and they have to top up 0.26 to convert ( 0.26+0.05=0.31) when they only need to pay for the mother share at 0.28 now ? A difference of 3 cents per share , more than 10% premium ?
It is either they are confident the share price will hit higher than 0.31 by convertion date or they are too speculative ?

Well, this is called leveraging.
By buying 5cts warrant, the investors are hinging on higher mother share price in the future.
For example, mother share goes from 0.28 to 0.48. The warrant price will increase to 0.25.

In absolute term, the increase is the same.
In percentage term, mother increases by 70% while the warrant sees an increase of 400%!!!

But, the other way is equally trued too. If the mother share drops below 0.26, the warrant will be worthless on the last date of warrant conversion.

Feel the management issued this warrant with the intention of raising the 30 odd millions to broaden its capital base, fairly sure they don't want it to go into the waste to see the share price go under 0.26 or below.
Believe they will do something to prop up the share price to make all warrants conducive to be converted.
One way is through share buyback , which the management had just got this resolution passed in the recent AGM.
This is just my personal opinion. Let's discuss, thanks.

Highly unlikely they will let the warrants expire with little convertion.
The 3 major shareholders hold 83% of the warrants.

Cheaper and safer to buy the mother share , it should earn at least 1 cent dvd in the next few months.

This company made 4.1 cents and only paid out 1 cent dividend ,the dividend yield is 3.5% . The dividend payout ratio is only 25% ,they are in the position to increase the dividend payout and thus the yield.

do yo uguys think the future dilution is a strong enough reason to remain uninvested in this?

If a company requires funds to expand its biz and do not want to increase the gearing then raising fund through equities is the other alternative.

(10-11-2010, 07:11 AM)Drizzt Wrote: do yo uguys think the future dilution is a strong enough reason to remain uninvested in this?

I guess the answers may well lie within the FY10 (ended 30Jun10) results announcement, specifically in Sections 1(d)(ii) and 6, and after some simple calculations.....
http://info.sgx.com/webcoranncatth.nsf/V...C00375A35/$file/HLH_Financial_Statements_Dividend_4QFY2010.pdf?openelement

When the remaining 129.986m outstanding warrants (as at 30Jun10) are finally converted into new shares by 24Nov11 - i.e about 12 months' time - Hai Leck's issued share base will increase from 325.014m (as at 30Jun10), to as much as 455.0m shares - i.e. by some 40%!

By using Hai Leck's latest FY10 NP of $13.449m as a basis, and 455.0m shares as a denominator, we can arrive at an adjusted fully-diluted EPS of $0.02956, vs. the figure of $0.041 given in Section 6.

A relevant question: Based on the last done share price of $0.28, how many people will be quite willing to accept the idea of buying into Hai Leck at the current price - in effect paying a historical PER of 9.47x - bearing in mind of the coming conversion of the as much as 129.986m outstanding warrants into new Hai Leck shares?? We must also bear in mind that a big chunk of Hai Leck's current revenue and profits are derived from projects. To be rational, one cannot simply assume these projects will last continuously (i.e. with no fluctuations or time gaps) or forever.

(10-11-2010, 03:54 PM)dydx Wrote: A relevant question: Based on the last done share price of $0.28, how many people will be quite willing to accept the idea of buying into Hai Leck at the current price - in effect paying a historical PER of 9.47x - bearing in mind of the coming conversion of the as much as 129.986m outstanding warrants into new Hai Leck shares??

The thing to note is that the conversion price is set at $0.26. If all the warrants are converted into shares, the net cash less all liabilities will be about $0.17 per share.

An investor paying for a share price of $0.28 is getting a "PE less cash" (if we striped away the cash - I learned this from you) of only 3.8, i.e. paying $0.11 per share for an EPS of $0.0296.

(10-11-2010, 04:40 PM)cif5000 Wrote:

(10-11-2010, 03:54 PM)dydx Wrote: A relevant question: Based on the last done share price of $0.28, how many people will be quite willing to accept the idea of buying into Hai Leck at the current price - in effect paying a historical PER of 9.47x - bearing in mind of the coming conversion of the as much as 129.986m outstanding warrants into new Hai Leck shares??

The thing to note is that the conversion price is set at $0.26. If all the warrants are converted into shares, the net cash less all liabilities will be about $0.17 per share.

An investor paying for a share price of $0.28 is getting a "PE less cash" (if we striped away the cash - I learned this from you) of only 3.8, i.e. paying $0.11 per share for an EPS of $0.0296.

Hi cif5000,
Spot on.

(10-11-2010, 04:40 PM)cif5000 Wrote: The thing to note is that the conversion price is set at $0.26. If all the warrants are converted into shares, the net cash less all liabilities will be about $0.17 per share.

An investor paying for a share price of $0.28 is getting a "PE less cash" (if we striped away the cash - I learned this from you) of only 3.8, i.e. paying $0.11 per share for an EPS of $0.0296.

You are quite right on the cash numbers, provided of course the company does not spend the existing cash reserve and the additional cash coming in from the warrants, on some fixed assets or new investments which do not contribute to earnings any sooner. If and when this happens, you will have to drastically adjust your assumptions on cash per share and "Adjusted PER, nett of cash".

Hai Leck just got listed no too longer ago, and does not yet have a proven generous dividend payment track record. Besides, management will likely spend at least a portion of the existing cash reserve and of the additional cash coming in from the warrants, on expansion projects. So is it wise for us to attach full value on the cash in the company? Probably not.

The coming conversion of the 130.0m warrants - and the resulting dilution impact on EPS and earnings for existing shareholders - does add a dynamic factor and a degree of uncertainty to investing into Hai Leck or holding on to the counter in the next 12 months.