Warrants Update: Asia Poly-WA trading at a discount

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This article first appeared in The Edge Malaysia Weekly, on July 11 - 17, 2016.

ASIA Poly Holdings Bhd, a small-cap cast acrylic sheet maker, was valued at RM67.4 million at its 26.5 sen close last Tuesday. While its shares are thinly traded, which is not uncommon for stocks of this size, there are several developments that might make it worth looking at.

Specifically, the company’s warrants are now trading at a 3.9% discount based on their closing price of 15.5 sen last Tuesday.

The warrants, Asia Poly-WA, have a strike price of 10 sen and a one-for-one conversion ratio. These are company-issued warrants that expire in December 2020, giving warrant holders plenty of time to exercise them.

Asia Poly’s earnings, while volatile, have been on an upward trajectory. For the trailing 12 months ended March 31, the company posted a net profit of RM6.36 million, a ninefold improvement over the RM687,000 net profit a year earlier. It is worth noting that Asia Poly’s revenue has been relatively flat over the same period. The improvement in earnings is mainly from the lower cost of goods sold.

Overall, Asia Poly was trading at 11 times its earnings per share of 2.4 sen and 1.9 times its net asset value per share of 14 sen as at March 31.

It is interesting to note that Asia Poly recently saw 9.88 million shares or 3.74% stake change hands off market at 32 sen apiece — a 28% premium to the 25 sen they fetched on the open market on June 24.

Filings show that non-executive director Thoo Soon Huat disposed of 1.29 million shares at 32 sen apiece on June 24, leaving him with 5.37 million shares or a 2.03% stake in the company. It is not clear which parties sold the rest of the shares.

Also worth noting is the reshuffling of the board in early June following the resignation of independent non-executive director Yap Sing Khon on June 1.

If Asia Poly’s share price rises to the 32 sen level that was transacted off market, the mother share would have a 20.8% upside from last Tuesday’s close. If the warrant’s price rose as well to 22 sen apiece, at parity (zero premium to the underlying share) the warrants stand to gain 41.9%.

Note that the stock’s 52-week high in December last year was 34.5 sen, while it touched a 52-week low of 17.5 sen in March this year.

In March, the company received a six-month extension until Sept 21 this year to complete a special bumiputera issue.