Fair Value: RM 2.57

Current Price: RM 2.22

Recommendation: BUY

On the 24th of Aug, the company announced its 2nd Quarter report for Financial Year 2010. Profit for 2Q10 has increased 11.47% compared to the 1Q10. However, the 2Q10's revenue continue to be in the downtrend since 1Q10. I'm maintaining a cautious outlook on the company's profit due to the slow global economic recovery. Therefore, I'm maintaining the Fair Value at RM2.57. As the current market price is below the Fair Value, I'm maintaining a Buy recommendation for the long term.

Refer to previous write-up here for more info on this company

Fair Value: RM4.52

Current Price: RM 5.21
 
Recommendation: HOLD

Based on the recent Q2 report, the company's profit had dropped 10.9% compared to the previous quarter. However, its revenue had increased 6.4%. This is most probably due to the strengthening of Ringgit against the US Dollar. Thus, I believe the demand for the company's rubber gloves is still increasing, but most probably at a slower rate compared to during H1N1 outbreak. At worst, I'm expecting the company's profit to remain flat at the next quarter. Thus, I'm revising the Fair Value for this company from RM5.76 to RM4.52  As the current market price is above the current Fair Value, I'm maintaining my recommendation to Hold.

For those of you who have bought this stock earlier based on my recommendation, I'm sorry for causing you to have paper loss. This company's business is quite resillient and its business was not affected during the 2008 US recession and I believe it will not be affected by the current slower global economic recovery as well. Thus, it is safe to average down your cost per share for this company.

Some of you might want to sell off at the current price to cut-lost and hope to buy it back at a much lower price. But personally, I would not recommend you to use this strategy UNLESS you need the money in the short term (within 3 months). Never try to time the market. This is because the market price might or might not drop to my current Fair Value, which is based on my worst expectation that the next quarter profit may remain flat. The market price might not drop much after you've sold it. So if you have the patience to hold on to this stock for a longer term (more than 1 year), the best strategy is to average down.  

Investing for the long term has a lower risk of losing money, compared to trading for the short term.

Refer to previous write-up here for more info about this company.

By Ooi Kok Hwa

(Source: http://biz.thestar.com.my/news/story.asp?file=/2010/8/11/business/6832498&sec=business)

Prices are influenced by intrinsic value and time value

LATELY, we notice that there are growing numbers of call warrants getting listed on Bursa Malaysia. Even though there are many call warrants issued and traded in the market, the trading volumes of these call warrants are relatively low compared with the normal warrants.

Besides, a lot of investors have been complaining that they are unable to make money from the call warrants that they have bought.

Many investors cannot differentiate between a warrant and a call warrant.

A warrant is a transferable option certificate issued by a company which entitles the holder to buy a specific number of shares in that company at a specific price (or exercise price) at a specific time in the future. It is normally issued by a listed company.

A call warrant (like a call option) also gives investors a right to buy stocks in a company within a fixed period of time. However, warrants are issued by listed companies whereas call warrants are issued by investment banks.

If investors exercise the rights in warrants, they will receive the listed companies’ shares.

Meanwhile, upon maturity of call warrants, investment banks will only pay investors in cash if the closing price of the listed companies is higher than the exercise price of the call warrants. Investors will get nothing if the closing price of the listed companies is lower than the exercise price.

There are many risks in buying into call warrants. Call warrants have shorter maturity period as compared to warrants. Normally, warrants have maturity period of five years or more whereas call warrants have very short maturity period of less than a year.

In many instances, investors who have bought into these call warrants do not realise that their call warrants have expired. Nevertheless, call warrants will be automatically exercised upon the maturity date if the settlement price is higher than the exercise price.

As mentioned earlier, a lot of call warrants are not actively traded in the market. In fact, a majority of them do not have trading volume on a daily basis. We believe one of the possible reasons is that some of these call warrants are getting nearer to maturity date.

The prices of call warrants are influenced by their intrinsic value and time value.

If the call warrants are getting nearer to their maturity date, the time value will be closer to zero. In addition, if the mother price of the listed companies is being traded at a lower price than the exercise price plus the premium that the investors have paid for the call warrant, the market price of these call warrants will fall below their original issue price.

For those who have subscribed into these call warrants, rather than cutting losses and selling them into the market, they will likely hold on to the call warrants and hope that the mother price will recover one day. Unfortunately, in many instances, investors get nothing upon maturity of these call warrants.

Given that the gap between the buying and selling prices is quite big for some call warrants, many investors find it difficult to buy or sell the call warrants. Hence the fact that call warrants usually have low trading volume implies that this is an instrument with very high liquidity risks.

The main reason for a lot of investors to purchase call warrants is the hope of getting payments from investment banks. However, investors need to understand that the majority of the call warrants are European-styled, which means investors cannot exercise them before the maturity date.


The majority of call warrants are settled in cash for the difference between closing price and exercise price. The formula for cash settlement amount is equal to the number of call warrants x (closing price – exercise price) x 1/exercise ratio. Hence, investors need to pay attention to the exercise price, exercise ratio and premium that they have paid.

For example, the exercise price on Call Warrant Company A (Company A CA) is RM10, the exercise ratio is 10 Company A CA to 1 Company A share and the premium investors need to pay is 10 sen for each Company A CA. To the call warrant holders, in order to breakeven, the mother share price of Company A needs to go higher than RM11 or RM10 plus RM1 (10x10 sen, which is the total premium that they have paid).

Lastly, investors need to pay attention to the fundamentals of the mother companies and check the potential price appreciations for these companies.


Companies with good prospects will have higher possibilities of price appreciation and therefore lower risk of buying into the call warrants.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

SEATTLE: Forty wealthy families and individuals have joined Microsoft Corp. co-founder Bill Gates and billionaire investor Warren Buffett in a pledge to give at least half their wealth to charity.

Six weeks after launching a campaign to get other billionaires to donate most of their fortunes, the chairman and CEO of Berkshire Hathaway Inc. released the first list Wednesday of people who have signed what he and Gates call the "giving pledge."

Buffett decided in 2006 to give 99 percent of his fortune to charity. Then, he was worth about $44 billion. After five years of investment returns while making annual gifts to five foundations, Buffett's fortune totals nearly $46 billion.

Bill and Melinda Gates do most of their philanthropic giving through their foundation, which had assets of $33 billion as of June 30 and has made at least $22.93 billion in total grant commitments since 1994.

Buffett said he, the Gateses and others have made 70 to 80 calls to some of America's wealthiest individuals. The people who agreed to the pledge are from 13 states, with the most participants in California and New York.

FILE: In this May 6, 2007 file photo, Microsoft co-founder Bill Gates, left, and billionaire investor Warren Buffett are seen during the annual Berkshire Hathaway shareholders meeting in Omaha, Neb. Gates and Buffett are launching a campaign to get other American billionaires to give at least half their wealth to charity. (AP Photo/Nati Harnik)

Among those who haven't signed the pledge, some prefer to keep their philanthropy anonymous, some were not available to talk, and others were not interested, Buffett said.

Many on the list will be asked to call others, and small dinners will be held across the country in coming months to talk about the campaign.

"We're off to a terrific start," Buffett said.

Buffett said he and Bill Gates also will meet with groups of wealthy people in China and India within the next six months to talk about philanthropy. They hope the idea of generosity will spread, but they have no plans to lead a global campaign, Buffett said.

Gates and Buffett estimate their efforts could generate $600 billion dollars in charitable giving. In 2009, American philanthropies received a total of about $300 billion in donations, according to The Chronicle of Philanthropy.

Stacy Palmer, editor of The Chronicle, was surprised and impressed by the speed at which the giving pledge idea has been accepted.

"I think it's remarkably fast that so many people went public with their commitments. The world of philanthropy tends to be very slow moving," she said.

Palmer noted that many of names on the list are people who are known for their philanthropic generosity. She said she would be more excited when she sees names that have not been on other major donor lists.

Taking the idea past billionaires toward millionaires and regular working people could make an even bigger impact, Palmer added.

Jason Franklin, executive director Bolder Giving, a relatively new organization that encourages big gifts from everyday people, agreed.

The Bill & Melinda Gates Foundation gave Bolder Giving a $675,000 challenge grant earlier this year to encourage more people to give at least 20 percent of their personal wealth to charity.

Franklin estimates the giving power of the world's millionaires eclipses the potential donations from U.S. billionaires many times over.

Gates and Buffett are asking billionaires not just to make a donation commitment, but to also pledge to give wisely and learn from their peers.

Their group has no plans for combined giving, and none of the philanthropists will be told how or when to give their money.

"Everybody has their own interests," said New York Mayor Michael Bloomberg, who participated in a teleconference with Buffett on Wednesday as one of the individuals who has signed the giving pledge. "That's what's wonderful about private philanthropy."

Bloomberg, who has a fortune estimated by Forbes magazine at $18 billion, said he has changed his personal philosophy over the years from wanting to be more private about his giving toward trying to play a leadership role. He said his whole family is in tune with his giving plan.

"I've always thought your kids get more benefit out of your philanthropy than your will," he added.

Others who have signed the pledge include filmmaker George Lucas, media mogul Ted Turner and Microsoft co-founder Paul Allen. - AP