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Author: kcchongnz   |   Latest post: Sun, 16 Jun 2019, 8:57 PM

 

Is Jaks’ Rights of Warrants Subscription Worth Investing kcchongnz

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Just sharing

 

Jaks announced the profile of its warrant issues yesterday on 21st November 2018 as below,

 

On behalf of the Board, UOBKH wishes to announce the following: -

  1. the issue price of the Warrants has been fixed at RM0.25 per Warrant;
  2. the exercise price of the Warrants has been fixed at RM0.64 per Warrant; 
  3. the Entitlement Date has been fixed as at the close of business at 5.00 p.m. on 21 November 2018; and
  4. the Deed Poll has been duly executed on 5 November 2018.

The exercise price of RM0.64 per Warrant represents a discount of RM0.27 or approximately 29.67% to the 5-day VWAMP of JRB Shares up to and including 2 November 2018, being the last trading day of JRB Shares immediately preceding the price-fixing date, of RM0.91 per JRB Share. 

It is noted that the expiry duration of the warrant will be 5 years after the issuance.

 

Someone posted a comment in Jaks thread in i3investor today.

Posted by Nikmon > Nov 22, 2018 09:13 PM | Report Abuse

haha, exercise price is 0.64, now warrant is only 0.05
0.75-0.64-0.05= 0.06.....8% premium....crazy pruce.

 

Company warrants are derivatives, or financial instruments whose value depends upon and is derived from an underlying instrument, in this case the underlying share listed in Bursa. In other words, the values of the warrants are linked to the expected future price movements of the underlying share.

Company warrants are issued by the company to raise money. They are normally initially issued “free” as a “sweetener" for a bond, preferred stock, or rights offering. It gives the holders the right, but not an obligation, to subscribe for new ordinary shares at a specified price during a specified period.

In this case for Jaks, the warrants are issued at a cost of 25 sen each, not free.

Jaks Warrants have a maturity date of 5 years after which they expire and are worthless unless the holder subscribes for the new shares of the company before the maturity date.  it raises funds for Jaks immediate need of about RM70m, mainly for use for the Vietnam Power Plant, some for a renewable energy project, and to reduce borrowings.

Company warrants are generally “American style” option which can be exercise any time by paying the exercise price and convert to the underlying shares before the expiry of the warrants. In Jaks case, the warrants can only be exercised after the second anniversary of the issue. If all warrants are exercised before/at the 5-year expiry date, it will receive RM178m. The proceeds will be used for investment opportunities, repayment of borrowings and additional working capital.

Jaks’ share price closed at 75 sen and its rights-to-purchase its warrants (WR) at 5 sen today on 22nd November 2018. If you are interested in the business of Jaks, is WR a good buy now?

To answer this, one must understand how their values are derived in order to make an informed judgment, rather than just looking at the technical chart, or just relying on supply and demand.

Date: 22nd November 2018

Jaks Price P: 75.0 sen

Jaks’ warrant rights WR: 5 sen

WR issue price: 25 sen

Exercise price: 64 sen

Date of expiry: December 2023

 

The Lingo

The price at which an underlying stock can be purchased or sold is called the strike price or exercise price (X). In Jaks’s case, X is RM0.64. This is the price, S, a stock must go above before a position can be exercised for a profit. This must occur before the expiry date.

Company warrant is said to be in-the-money if the share price (S) is above the strike price (S>X). The intrinsic value is the difference between the underlying share price (S) and the exercise price (X). However, the IV cannot be a negative number, as the holder is not obliged to come out with additional money to exercise it and can just let the warrant expires without doing anything. Hence

IV = Max [S – X, 0]

Assuming after the ex-date of the WR in a few days’ time, the share price of Jaks remains unchanged at 75 sen,

IV of Jaks warrant = Max [S-X, 0] = Max [0.75-0.64, 0] = 0.11

This means the warrant is already in-the-money with the share price of Jaks at 75 sen. But this doesn’t mean WR is already considered a good buy, because you got to pay some money to get the warrant.

In this case, the cost W is 5 sen + 25 sen = 30 sen. This being the cost of WR plus the cost of subscribing to the warrant.

The total cost (the price) of a warrant above the market price of the underlying share is called the premium P.

Premium P = W + X - S

% P = (W + X - S) / S = (W + X) / S – 1

Where W is warrant price, X is exercise price and S is the underlying share price.

Further assume that this 30 sen is the price of warrants traded after the ex-date of WR and upon the listing of the warrants. Note, it is not necessary so.

Premium of Jaks warrant, P = 0.30+0.64–0.75 = 0.19

P% = 0.19/0.75 = 25.3%

The lower the premium the more valuable is the warrant. Is 25.3% premium high? It depends.

The two components of the price of a warrant are the intrinsic value (IV) and the time value (TV).

Price of warrant W = IV +TV

TV = W-IV = 0.30-0.11 = 0.19 which is the same as the premium

This price of warrants, W, in actual trading later is determined by factors including the stock price, strike price, time remaining until expiration (time value) and volatility.

In general, the more time to expiration, the higher the gearing, the greater the time value of the warrant. Investors are willing to pay a higher premium for more time, since time increases the likelihood that the position can become profitable.

In this case, the gearing is share price/warrant price = 0.75/0.30 = 2.5

Is Jaks’ WR worth a punt?

The above may serve as a guide for you to make an educated decision.

We will have to wait for a few days later when the warrants are traded at actual price to determine if the warrants are attractive in relation to the share price of Jaks.

 

K C Chong

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Labels: JAKS

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Chart Stock Name Last Change Volume 
JAKS 0.755 +0.015 (2.03%) 3,547,900 

  4 people like this.
 
abang_misai Bimb-wa still can hold?
23/11/2018 8:00 AM
Ande1982 thanks sifu kc for sharing
23/11/2018 8:02 AM
DK66 exercise period has been revised to "at any time"
23/11/2018 8:18 AM
arv18 Thanks.
23/11/2018 11:40 AM
qqq3 this guy from NZ think Malaysia only got Jaks and Sendai.....
23/11/2018 11:56 AM
3iii When buying derivatives, look at its mother shares. Do you like the company?
24/11/2018 3:41 PM
deMusangking who wants to look at the mother!!!! i prefer ahmoiing with the daughter leh!!!!!!


haha
24/11/2018 3:43 PM
3iii What is a warrant?

WARRANTS are 'derivative' investment products - that is, they derive their value from an underlying asset such as a stock or a market index.

They give the investor the right to buy or sell the underlying asset from the issuer by paying a specific 'strike' or exercise price within a certain timeframe.

A call warrant gives the holder the option to buy, while a put warrant gives the option to sell.

Take Jak's call warrant for example.

If the price of the underlying Jak stock rises above the exercise price before the expiry of the warrant, it will clearly be to your advantage to exercise the right to buy Jak shares.

If you plan to exercise the Jak warrant - that is, convert it into a Jak share - you must do so before the expiration date. Of course, if Jak's price stays below the exercise price, the warrants will expire worthless.

But investors often do not have to hold warrants to maturity. Normally, they simply buy and sell warrants on the stock market as they move in line with movements in the underlying share price.

'Warrants, unlike shares, have a finite lifespan; for each day the investor holds on to the warrant, the warrant loses some time value.'



>>>Jaks Warrants have a maturity date of 5 years after which they expire and are worthless unless the holder subscribes for the new shares of the company before the maturity date.

It raises funds for Jaks immediate need of about RM70m, mainly for use for the Vietnam Power Plant, some for a renewable energy project, and to reduce borrowings.

In Jaks case, the warrants can only be exercised after the second anniversary of the issue.

If all warrants are exercised before/at the 5-year expiry date, it will receive RM178m.

The proceeds will be used for investment opportunities, repayment of borrowings and additional working capital.<<<<
24/11/2018 3:52 PM
3iii Jaks closed at 74 sen per share on 23.11.2018

Jaks’ warrant rights WR: 5 sen

WR issue price: 25 sen

Exercise price: 64 sen

Date of expiry: December 2023


While warrants can offer a smart addition to a portfolio, keep in mind the following - your view of the underlying share is important.



======

Understanding warrants

A warrant is a derivative. It derives its value from its underlying mother share.

The performance of a warrant will always depend on performance of its underlying share mother share.

Warrant is trading at a discount when:
Mother share price > Price of warrant + Exercise Price

Warrant can trade at a discount if the underlying share has just enjoyed a spectacular run in price. Investors should avoid buying these discount warrants if they feel the high price of the mother share is unsustainable.

Warrant is trading at a premium when:
Mother share price < Price of warrant + Exercise Price

The warrant's premium can crudely measure how much more expensive it is to acquire a share via a warrant compared to buying a share directly.

Premium are commonly used as a quick measure of the warrant's expensiveness.

Because warrants are issued at a premium, investors must consider if it can appreciate to a level that allows recovery of the paid premium within the warrant's lifespan.

Another important factor to consider when selecting a warrant is volatility. A high volatility warrant, even though more expensive, can very well generate more money than a low volatility warrant. High volatility means that the underlying share is more likely making big swings.

It has to be noted that the time span to expiry is very important for warrants. The longer it is from expiry, the higher should be the premium because longer time will be afforded for the mother share to rise.

Of course, you are entitled to dividends as shareholders, but as a warrant holder, you only need to pay a fraction of what shareholders pay.

Most Malaysian investors do not have a good understanding of warrants. However, it must be noted that we should not purchase warrants that are grossly out of money.

While warrants can offer a smart addition to a portfolio, keep in mind the following - your view of the underlying share is important; understand the unique nature of warrants and stay attentive to small movements in the market.
24/11/2018 4:02 PM
myongcc5 Good sharing...KC
24/11/2018 5:04 PM
qqq3 Is Jaks’ Rights of Warrants Subscription Worth Investing ?

If Jaks reaches $ 2 in coming 5 years.....buying Jaks at 70 sen or buying WR ar 3 sen, which is optimum earnings, if you got $ 10,000 right now?

$ 10,000 can get u 14,000 shares at 70 sen.
If it reaches $2....your profit is ($2-$0.7) X 14,000 = $ 18,200

at 3 sen plus subscription price of 25 sen, $10,000 can get u 36,000 warrants at 28 sen each.

If it reaches $2....your profit ($2- $.28- .64) X 36,000 = $ 39,000

----

see...one option gets u $ 18,200, the other option gets u $ 39,000

The only condition is u got to get it right.
24/11/2018 7:55 PM
deMusangking aiyoh, to get it right, STAY AWAY!!!!!!
24/11/2018 8:05 PM
qqq3 sarifah....no need....If share is $2.00...warrants will be traded at (2-0.64).....they call it magic....
24/11/2018 9:09 PM
qqq3 ada menang ada kalah
24/11/2018 9:13 PM
kcchongnz Posted by qqq3 > Nov 24, 2018 09:09 PM | Report Abuse
sarifah....no need....If share is $2.00...warrants will be traded at (2-0.64).....they call it magic....


Magic????

How do you come to this conclusion? Are you sure this is right? Tell us the reason.

And what if Jaks is traded at 70 sen, the price it is now, after the right issue of WR is completed?

If not 70 sen, what do you think the price of Jaks will be then?

And what price is the warrant will be traded?
24/11/2018 10:12 PM
jediknite today mother drops to 0.60 shld subscribe 0.25? 25 + 64 = 89,

0.29 premium 29/60 = abt 50% premium

price can hold ??? any advise whether to subsribe or not?
29/11/2018 1:52 PM


 

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