This article first appeared in Capital, The Edge Malaysia Weekly, on February 22-28, 2016

SHARES of Negeri Sembilan-based particleboard maker HeveaBoard Bhd, against which a financial blog made several accusations recently, are down 18% year to date.

This presents a higher upside potential for HeveaBoard and the company’s warrant, Hevea-WB, which could be a cheaper alternative for  investors looking to ride its prospects despite the allegations in the blog.

Hevea-WB carries a strike price of 25 sen and a one-to-one conversion ratio. The 10-year warrant expires on March 1, 2020.

At its closing price of RM1.06 last Wednesday, Hevea-WB was trading at a slight discount of 1.5% to the mother share, which closed at RM1.33 that day.

In a Jan 12  research note, CIMB Research maintains an “add” call on HeveaBoard with a target price of RM2. If the research house is right, there is 50% upside potential from the stock’s RM1.33 close last Wednesday.

That means at zero premium, Hevea-WB would theoretically be worth RM1.75 if its mother share hits the target price. This presents an even higher upside of 65% for the warrant.

To recap, early last month, a financial blog posted articles with three allegations against HeveaBoard: (i) the non-payment of dividends; (ii) that 700 of the company’s containers were stranded at a South Korean port in October last year due to non-compliance with quality standards; and (iii) its failure to disclose an inter-company loan extended by its major shareholder.

On Jan 13, HeveaBoard issued an official statement in response, saying the contents of the blog posts were “untrue, defamatory and malicious in nature”.

CIMB Research analyst Marcus Chan reckons that management addressed the issues well and his sense is that institutional investors were comfortable with the explanation. “We urge investors not to be distracted by these ongoing non-fundamental and frivolous allegations. In our view, any share price correction is an excellent opportunity for bottom fishing,” he says.

In an exclusive interview with The Edge last month, group managing director Yoong Hau Chun said it was business as usual at HeveaBoard and stressed that the company’s fundamentals were intact.

In fact, he said, HeveaBoard had a happy problem — its production plants in Gemas, despite having two manufacturing lines with a combined annual capacity of 525,000 cu m, were unable to keep up with the strong demand.

“We are actually being pressured by our customers, especially from China, to expand our capacity. Initially, we were quite serious about adding a new line. But later on, we decided to upgrade our existing line and not concentrate so much on volume,” says Yoong.

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