Yesterday, AXIATA emerged as the top index mover after its share price rose 12.0 sen (2.5%) to RM4.84 on increased volume (8.8m shares). AXIATA’s share price has been on a healthy recovery since its intra-day low of RM4.11 on 29 Nov 2016, having recovered by 72.0 sen (17.8%) within a short span of two months. Recent share price catalysts include its 18 Jan 2017 announcement, which shed further light on its plans to monetise its tower business – edotco. As a brief recap, this will be executed via a primary and secondary placement amounting to a 34.1% stake in edotco to Innovation Network of Japan and Khazanah for USD600m. Post deal, Axiata is expected to realise a gain of RM2.4b while its remaining stake of 65.9% is on-track to unlock shareholders’ value. The deal comes at a time when AXIATA is considering an IPO of edotco in 2018 to unlock the value of its tower and infrastructure assets. Additionally, the proceeds from the share placement is set to fund its growth strategies (including key acquisitions within Asia and in-country organic opportunities), pare debts and for working capital.

From a charting perspective, AXIATA’s share price is poised for further gains and we see the potential for a move towards RM5.27. Investors who wish to gain a leveraged exposure can consider AXIATA-C15 (strike RM4.65) which currently offers an effective gearing of 5.6x. This means that an 8.9% gain in the underlying price to RM5.27 would (all else remaining the same) translate to an upsized gain of 50% for AXIATA-C15.

Structured Warrant Strategy:

Currently, there are 9 structured warrants available for AXIATA. However, most are being offered with wide bid-ask spreads, which is far from ideal, given our expectations of a modest 8.9% gain on the underlying and 4-5 weeks trading horizon. That said, we see AXIATA-C15 (strike RM4.65) and AXIATA-C16 (strike RM4.50) as viable choices for our trading strategy, both having the advantage of offer tight spreads.

In particular, AXIATA-C15 has been popular with 1.7m units changing hands yesterday. This structured warrant is In-themoney and currently offers a high effective gearing of 5.6x. The effects of time decay should also be minimal given the long duration to expiry (9 months) and low implied volatility of 26.9%. We also like AXIATA-C16 which is more suited for frequent traders. Although the effective gearing is lower at 4.2x, AXIATAC16 is deeper In-the-money with a shorter time to expiry (7 months). Combined, these make AXIATA-C16 more sensitive to changes in the underlying price, while at the same time providing ease of entry and exit.

Source: Kenanga Research - 25 Jan 2017