Yongnam: Worried about warrants?

Yongnam has been doing very well in recent years. Its management also shows a commitment in sharing the fruits of its achievements with shareholders as it paid steadily higher dividends in the last four years.

Yongnam's order book remains robust although its Q1 revenue and profit declined due to delays in starting up of a couple of projects. Is this why its share price has been languishing? Does Mr. Market expect Yongnam to underperform from this year on?

Well, to be fair, the broader market has been languishing too. It remains to be seen whether the 3,000 points pyschological resistance on the STI could be overcome.

With Yongnam, I am not so worried about its fundamentals. In fact, I expect the company to win more contracts as regional governments spend more on infrastructure projects. This will generate steady revenue for the company. With increasing contribution from its specialised civil engineering arm, profits are likely to improve at a steady clip.

What could be holding back its share price is its outstanding warrants. Warrants? Yes, the company had a 3 for 10 warrants issue in 2007. 3 for 10 is quite a big proportion. If all the warrants were exercised, we could see a 23% dilution in EPS. Then, its shares would look more expensive.

So, the question is whether Yongnam is able to make use of the funds productively to improve its EPS proportionally or more to negate any dilution concerns. This is something that no amount of foresight would be able to throw light on. So, a cautious Mr. Market is understandable.

Now, I would like to suggest that it is possible that holders of the warrants might not exercise the warrants. Reason? The exercise price is 25c a piece. With Yongnam's share price at 23.5c at the last closing, these holders could be better off allowing the warrants to expire and buying more shares of the company in the open market if they wanted to add to their long positions.

Also, if I remember correctly, the warrants were not free. They were sold at 3c a piece. So, the full price of a warrant turned share is actually 28c for the original warrant holders.

There are rather bullish 12 months target prices for Yongnam's shares by various research houses from 30c or so upwards. Unless Yongnam's share price is able go past 25c a piece, the exercise price of its warrants, I doubt holders would exercise their warrants and worries of dilution would evaporate, therefore.

The warrants expire 14 Dec 2012. That is only five months away. I guess I can only wait and see.

Related posts:
1. Yongnam: 3 new contracts worth $63.8m
2. Yongnam: FY2011 results.

Yongnam: 3 new contracts worth $63.8m.

Yongnam announced that it won 3 new contracts worth $63.8m. This will add to the company's current order book of $469m, making it $532.8m. These new wins are expected to have a positive effect on the company's numbers for 2012. Yongnam is a leader in its field and expectations are for more contract wins in the coming months.

Yongnam's net profit for 1Q 2012 came in lower compared to 1Q 2011 because of delays in projects starting up in 1Q 2012. 2011 was also a very strong year due to completion of higher margin projects. An improvement in 2H 2012 is expected, however. 

"Nonetheless, we continue to win notable projects both in Singapore and overseas. As at March 31, 2012, our order books stood at a healthy S$469 million. We remain cautiously optimistic that the Group will perform reasonably well in FY2012 in view of a strong pipeline of projects that we are bidding for and the two delayed projects ramping up in the second half of the year." Seow Soon Yong, CEO

Gross profit margin: 29.3%
Net gearing: Lower at 0.28x
NAV/share: 24.13c
EPS: 0.91c

If we were to annualise the weaker quarterly EPS of 0.91c, we will get 3.64c. This would give us a PER of 6.45x with a share price of 23.5c.

Read announcement: here.
See 1Q 2012 results: here.

Tea with AK71: Lipton, Twinings, TWG et al.

I think we would not have missed much if we stayed away from the stock market the last few days. So, we might as well take it easy and have a cup of tea once in a while. My usual is a cup of Lipton tea which is inexpensive and quite good, I feel.

I had Twinings before which is supposedly more atas. Is it really?

Then, when a friend from Hong Kong came to visit, he went into this very atas looking tea drinking place, TWG, in ION Orchard. He was looking to buy some TWG tea because they were not available in Hong Kong. He and his wife bought some in Canada and enjoyed it. I looked at the prices and anyone looking at me then might have wondered whether to call an ambulance. Super expensive!

What inspired this blog post? I recently ordered some supplements and was given a packet of very atas looking tea. It is St. Dalfour Classic Breakfast Tea. It is organic tea from Ceylon and blended in St. Dalfour, France. Wah! If it doesn't sound atas to you, you must be drinking more atas tea than this. Please help to educate me.

Note for non-Singlish speakers: The word "atas" in Singlish means "high class".

Borrow money and be paid to do so!

No, there is no typo in the title of this blog post. Yes, you read it correctly!

So, where can we go to borrow some money and be paid to do so? Who are the people lending us money and paying us for it? Maxi-Cash?

Nope, not Maxi-Cash. What I am describing is happening in Germany and, unfortunately, the option is not open to us. So, it would remain a dream.

Hey, day dreaming is actually good for health, you know?

BERLIN: Investors paid to lend Germany money for six months at an auction on Monday, the country's central bank said, as they flocked to the safe haven of Europe's top economy.

The yield or rate on the auction of six-month debt was a record low -0.03 percent, the Bundesbank, which organised the auction, said in a statement.

Source: CNA, 9 July 2012.
Read the full story: here.

In ASSI, we talk of growing our wealth and beating inflation. We also say that if we want to protect our wealth, we have to take risk. So, to find investors parking billions of Euros in bonds with a negative yield is simply mind boggling! For these investors, they cannot even talk about how the interest they receive is not keeping up with inflation. Upon maturity, they would get back a smaller amount! (Keeping my money at home would at least ensure that the nominal value stays the same, wouldn't it? I think I am missing something here.)

Some would argue that these investors are paying the borrower to keep their money safe. Now, I am going to say something which you might find enlightening (or not): Keeping our money safe is not the same as keeping our wealth safe.

Related posts:
1. Grow your wealth and beat inflation.
2. To protect our wealth, we have to take risk.

China Minzhong: Crossroads.

China Minzhong's share price has been forming a base. It is clear that immediate support is now provided by the 20dMA which has stopped declining and is, in fact, gently rising. A rising MFI suggests that there is an underlying and growing demand while the sharply rising OBV suggests that smart money is moving back into the counter as its share price moves sideways with an upward bias.

The MACD, although rising, is still in negative territory. However, this could change soon as it could cross into positive territory next week, everything remaining constant. Could a change in trend take place soon? It looks possible.

The 50dMA is still declining sharply and we should see it crossing the 20dMA in the next week or so. If the share price is able to stay above the 50dMA then, we could see much more room for moving upwards.

A major resistance would be a gap fill at 82c which, incidentally is where the 100dMA and the 261.8% Fibo line are approximating. Before that, however, I expect resistance to manifest at 71c which is where the 161.8% Fibo line approximates.

Immediate support is at 59c thereabouts.