Heitech Padu – does the price spike mean better future?

[i4value]

As a long-term value investor, the advice I have received is not to listen to the news or watch market prices daily. However, I have learned over the years to ignore the one about watching prices. This is because a spike in share prices does not last long and you may miss an opportunity if you don’t watch prices daily.

A good example is Heitech Padu. The stock price went up by 22% yesterday compared to its Friday closing price. 22 % over 3 days is not a normal thing.

So the price spike interests me as it cannot be justified based on its historical performance. So is there going to be some announcement that provides a quantum leap in business performance, or it this some speculative play?

To be transparent I have some shares here carried forward from years ago. I have also had a detailed fundamental analysis of Heitech to justify my view.

[i4value]

A month ago, I wrote about the price spike in Heitech Padu and wondered whether it was going to be some news that would provide a quantum leap in business.
The price had jumped from about RM 1.00 per share to RM 1.15 per share. I had some Heitech shares that I bought sometime back at about RM 1.04 per share and I told myself to exit when the price went up to RM 1.30 per share.
Unfortunately, the high price did not sustain fell to below RM 1.00 per share a week later. I figured that the price spike was just some speculative play. Then just before the Lunar New Year it spiked again to RM 1.20.
This time instead of listening to myself to hold until the price went up to RM 1.30, I thought that I better not miss this round of speculative play. So last Fri I sold it at RM 1.20 per share.
You can imagine my disappointment when the price went as high at RM 1.56 yesterday. I left RM 0.36 per share on the table. What a idiot. Can anyone offer an advise on what to do the next time?

[weijian]

Hi i4value,

Sometimes, I do wonder why people are asking for advice that is obviously not investing related, but more behavioral in nature.

Oh I forgot! There is this intersection between psychology and finance...called behavioral finance and it is made popular by authors like Daniel Kahneman and Richard Thaler.

Do you think that the majority shareholder/s of the company cares as much as the share price changes as you do? Will they start selling shares when they sees a spike like you do? Of course, one can say that majority shareholder/s are probably also managing the company and hence drawing a salary, while the stock holder like me/you don't draw a salary. But if the Mgt gets their wealth from salaries and not from share price appreciation/dividends, then it is quite obvious that the "structure" is not right.

I think as minorities, the start of all our problems.....comes when we start to think that our paper gains are real gains!(endowment effect)

[i4value]

HTPadu share price had shot up to as high as RM 1.80. I think it is pure speculative as when the company announced its year end results a few days ago, they also announced that they had re-valued their properties. So the NTA doubled to around RM 1.20 + per share. But is earnings was nothing to shout about.

[weijian]

Hi i4value,

If their properties were previously recorded as cost on the balance sheet, Mr Market might have difficulties quantifying it as an outsider. With better clarity coming from the re-valuation exercise, the uncertainty reduces and so it might not really be "pure speculation". Furthermore, is there any reason/s for the revaluation exercise? For all we know, it might be sold soon?

[i4value]

MyEG has now emerged as a new substantial shareholder of Heitech Padu. According to the news, MyEG acquired Heitech for about RM 2.21 per share.

Now that we know why there was a run up in the share price for the past few weeks. But from a fundamental perspective, is the current price at RM 3.05 per share justified?

This will depend on whether there are projects that MyEG can help to secure for Heitech that would boost Heitech earnings.

I last blog about Heitech in 2022 where I compared the performance of a number of ICT companies. The average ROE achieved by Heitech was negative 5 % compared to MyEG average of 31%.



Based on the 2021 book value and assuming that Heitech can match the 31% ROE, we will have an EPS of RM 0.33 per share. So for those excited about Heitech Padu, you can imagine a PE valuation based on this earnings?

Are we going into the realm of speculation? The best I can say at this stage is that MyEG price would probably be a floor price but the ceiling would depend on the new business of Heitech.

Its historical businesses is not going to give it the earnings multiplier to justify even the floor price. And to achieve the 31% ROE, Heitech has to take care of its historical businesses to ensure that there are not loss making.