Warrants Update: Takaso-WB rally to continue?

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TAKASO RESOURCES BHD’s share price has more than doubled since August, jumping 158% over 2½ months from 25 sen to 64.5 sen last Wednesday.

Likewise, the loss-making condom maker’s warrants, Takaso-WB, rallied from

10.5 sen to a high of 22 sen late last month, before retreating to 19.5 sen last Wednesday.

Although the derivative gained alongside its mother share, it is currently trading at a discount.

As at last Wednesday, Takaso-WB was trading at 19.5 sen per unit, which is at a 15.5% discount to the mother share. The derivative, which expires on Sept 4, 2016, has a strike price of 35 sen per unit.

If investors were to buy the warrants at 19.5 sen per unit and convert them into shares, they could make a instant paper gain, should the mother share’s price remain the same or go higher.

However, it should be noted that Takaso-WB only began trading at a discount to the mother share from Sept 25, as the warrants had been slow in tracking gains at the underlying shares.  

A remisier attributes the rally to Takaso’s announcements on setting up a partnership to venture into the Indonesian market. Also, Takaso intends to go into construction.

On June 4, the company announced that it has entered into an agreement with Harrison Law, Sendy Parmon and Eddy Iskandar to form PT Takaso Indonesia Manufacturing to produce some of Takaso’s products to be sold in Indonesia and elsewhere.

On Oct 1, it bought the entire stake in Dynavance Construction Sdn Bhd from Ong Kim Chong, Tan Poo Yot, Ong Kah Hoe and Ong Kah Wee for RM9.5 million cash. The acquisition comes with a profit guarantee of RM12 million over 24 months.

However, some quarters are sceptical about the profit guarantee as many companies had failed to deliver in the past.

The sharp rise in Takaso’s share price has raised eyebrows.

The remisier says the market might expect a correction of Takaso’s share price soon, as it has rallied way ahead of its net tangible assets of 24 sen per share as at its financial year ended July 31, 2014 (FY2014).

Furthermore, its existing business is incurring losses. For FY2014, Takaso posted a net loss of RM5.9 million or 3.77 sen per share, compared with RM3.6 million or 2.42 sen per share previously.

This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.