From excitement to bewilderment to kneeled-prayers ( there was a surge in attendance in worship places .. I was told..), and finally frustration with deep emotional outburst from some…sigh.. that was what greed and fear can do to men and women since time immemorial.

Like I said before, the Stag acquisition do look interesting (more so after the discount given by the vendor) but bear in mind of ..current oil price. And current is not current unless it is now. (Go figure).
If oil price had stayed above USD50 since then, it means that the acquisition is palatable but after hitting below 30, even the Arabs had to jump off the camel’s back before it is broken.

Mr. Saw rightly said in his presentation that everyone is an expert on oil prices these days. At 100 bbl, the experts were talking about Hubert’s Peak Oil theory and had everyone jumping into the O&G bandwagon. Juggernaut QLC too went in. But we all know how it all ended. Today with oil hitting below 30 and recently grasping at 40s, the experts reared their new heads proclaiming that the world is awash in oil and for a good number of years to come. How very little do people know.

But why all these stories to bore everyone? What I want to know is – what is going to happen to my Sona and to the more than a billion warrants? With the result of the latest EGM, it was a death knell to the QA and warrants. Or is it?

The smart money has always been in buying Sona for its yield. This happened in the US where several SPACs were defeated by hedge funds when SPACs were trading significantly below cash value. With zero and low interest rate environment, the SPACs were against the returns available. Sona had to compete with not only low opportunity costs but against the brutal volatility of the oil prices.

But the smartest money is to be greedy when others are fearful – IF you know what you are about to get. I won’t bore you with the maths but just to say is that the margin between the supply and demand for oil is an amazing thin figure – around 2% on daily basis – leading to the volatility. The recent IEA report even mentioned that there were storage distortion not captured by their data due to non-OECD voids. In other words, countries like China, who has been continuously buying up oil has not reported their buying. Why should they?

The action of Saudi Arabia in trying to float their oil assets speaks the loudest. They know they can’t be pumping forever.

So what is all these mumbo-jumbo about? Well I think that oil is bottoming out and Sona could have been the cheapest O&G, depending on your choice of investment, that bursa ever had. HAD?? HAD-ain’t ??? (Forgive the pun, I couldn’t resist  ). So is it the end of the journey for Sona? Maybe not so. Next week, if time permits, I shall post what I think the management of Sona might probably and possibly do before the dreaded July 31 deadline looms.

Exactly 2 years ago I wrote a piece on Instacom which has gone from a loss of 50% to a gain of 50%. What a ride! Just like riding a huge roller coaster, it takes guts, conviction, plenty of “what-ifs” scenarios and the occasional prayers before reaching the end to disembark quickly.

At a current price, we are staring at a telecommunication tower contractor turned building tower contractor with a RM750 million market cap. One research house is even looking at a price of over 70 sen per share which values it at a whopping RM1.5 billion! I am not sure how the figures were derived but for comparison, a just listed Suncon with all its glory is valued only at RM1.7 billion.

Anne Kung , despite putting in effort to make Instacom a major player in the telecom tower biz, just stumbled on bad luck when the bestari one contract failed to take off. Instead of sitting still, she decided to do what is next best – and popular in the 90s (as mentioned before, she was a 90s student)- an RTO.

Here we have the result. Since this jockey has finished the race, I guess it’s time to move on. The new instacom or soon to be known as vivocom, may be heading towards 72 sen, but I guess it’s not my ride since I don’t know them.

Is betting on jockey a rewarding experience? Well as Buffett says, “Even a great jockey can’t do well with a broken down nag”. Maybe I should be concentrating on returns rather than experience. Good luck to the rest of you….and now about this upcoming Red Sena ipo….hmmm…another jockey again?

Hooray !! Excitement in the penny stocks again. But wait….

How do we value sona from this announcement? Let’s do the maths.

Based on Santos latest report, annual production probably around 1200k bbl. After deduction on production cost, depreciation & depletion, and admin of around USD32 bbl, we have a gross of USD18 bbl if oil stays at USD50 bbl.

On pre-tax basis, 1200k x 18 x 4 ( USD/MYR ) =RM86.4m per year. At a PE of 12 = RM1036m or 73 sen/share, excluding cash reserves IF the deal goes through.

And if, the proposed infill drilling is successful, there will have additional upside.

Therefore, we have a base case of 1P of 70sen/share to a 2P $1.20/share and 3P $1.80/share? But bear in mind the following ..

It seems to me that some of you who have bought this stock or intrigued by it are frustrated and angry. Some even console themselves by thinking up conspiracy theory or will wait for the 3rd quarter report as a guide. All because the price did not go up the way you thought it will be.

Well the thing is that the stock market doesn’t owe anyone a living. Our decision to buy or sell a security based on thorough analysis should be what an investor rely on to have a safety of principal and an adequate return. Having set the tone of this letter, let us take a look what Instacom have. ( I am biased here so read with caution ! )

At 26sen, it is valued at around RM183m. A profit guarantee of RM15m for FY13 and FY14 has been given by the sponsors. In May, it secured a RM205m contract spread till 2015 which probably gives a profit of RM8m to RM10m for next two and a half years. Assuming FY14 would return RM25m, Instacom is priced at an undemanding 7.3X compared to OCK’s 19X. Whatever metrics are used, Instacom is way cheaper than OCK. Furthermore unlike OCK, Instacom has yet an institutional investor.

Recent share spike after the budget announcement of 1500 telco towers probably excited many people. Rightly so. Sabah and Sarawak are not like the Peninsula. You really need to know the terrain and the people to get things done. Anyone who is competing a job there need to think not only the technical and logistical support but of the immigration too. Who are Instacom competitors in East Malaysia? I can’t think of anyone at this point and this thought is blowing my mind off. So if you do know a serious contender by all means do tell before my brains swell up. By the way, the budget stated RM1.5 billion to roll out these towers, but current market average cost is around RM300k per tower. Interesting isn’t it?

Enough of the economics. The question that some of you demanded answers is probably why did they sell? Aren’t they supposed to buy and make everybody happy? Coincidentally they announced a change of the auditor and this is not making things smoother for this forum. Is something rotten going on? Well I don’t have the answer. But assuming I am one of them, I would look at my shareholdings and realized that the warrant which I got for free is 19 sen and the mother share is 34 sen while the conversion price is 33 sen. Oh my! I can sell a synthetic mother share at 51 sen! Or why not sell the warrant and buy the mother share? Even better if the mother share will drop to as low as it will go before I buy them to replace the warrants I’d sold earlier? (You do the maths ). A warrant loses its value over time and worst still if ever higher dividends are announced. Did I say that the management is thinking of a REIT ala Tower Reit? I won’t be surprised if Instacom starts to dish out higher dividends over the coming years after paring down their debts.

Anne is a product of the ’93 market and being one of Datuk Effendi’s key lieutenants, she is as smart as they come. And Effendi doesn’t suffer fools gladly. ( You still think there is an insider element?)

As Buffett would say, if you don’t know the winning horse, bet on the jockey. And this bet definitely has a placing and probably a win too….