Malaysia’s BIMB Holdings Berhad is a dynamic financial holding company with an extensive portfolio of diversified businesses across the Islamic financial industry. Its long-dated warrant, BIMB-W (maturity: 2023) was issued / listed in 2013. Since the listing date of BIMB-W, the underlying BIMB had recorded a marginal gain of 0.70%, whilst its warrant BIMB-W’s price has dropped as much as 66%. Are we seeing a divergence? Is this a potential opportunity to consider BIMB-W?
Today, the FBMKLCI dropped below the crucial threshold of 1,700 points due to prevailing negative sentiments surrounding the default of Government-linked investment fund, 1MDB in paying its interest due. Ringgit closed lower too. There is simply too much volatility in the current investing environment. Personally, I foresee that the volatility will continue to increase over the next 1-2 years in view of growing uncertainties with domestic and international front. Nevertheless, we can’t stop investing because of fear. We should always take a longer term view when comes to investing. One such instrument that may be considered by investors for the purpose of long term investing is the call warrant issued by Malaysian-listed BIMB Holdings Berhad. This long-dated call warrant will expire in the year of 2023 and some of its terms are summarised as follows:
|Exercise Price (MYR)||4.7200||Implied Gearing a||7.647||Conversion Ratio||1 Share : 1 Warrant(s)|
|Premium (%)||32.115||Simple Gearing||11.265||Expiry Date b (Countdown)||04 Dec 2023 (2,777 days)|
|Outstanding Warrants c||426,715,878||Underlying (Price)||BIMB (3.830)|
|Exchange Code||5258WA.MY||ISIN Code||MYL5258WAXC6|
Let’s do a quick desktop analysis to assess whether BIMB’s warrants (“BIMB-W”) are relatively overvalued or undervalued. A simple regression analysis is performed between the price of BIMB-W and its mother share, BIMB:
Based on the above statistical relationship:
|BIMB-W (actual) – 26 April 2016||0.34|
Currently, BIMB-W appears to be fairly valued with a forecast value of RM0.36 against actual value of RM0.34. The 95%-confidence interval for forecast value of BIMB-W is between 0.160 and 0.552.
From a different perspective, this desktop analysis shows that that when BIMB (mother share) ever reaches RM3.18, the value of BIMB-W is expected to approximate zero or in another word, the capping warrant premium for BIMB-W is 48.2% (based on the exercise price of RM4.72). We should expect BIMB-W to reverse downward when its warrant premium approximates 48.2%.
The good thing about using longer-dated warrants (or options) is that the value will not be impacted significantly by its time decay property.
What are analysts’ current target price on BIMB?
|Date||Open Price||Target Price||Price Call||Source|
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