Using my conservative calculation. NPV or FV is 2.61.
This assumes that the highway is not as good as litraks, plus or duke.
It also assumes zero growth in traffic. 4.5% discount rate.
Its one of the better bargains KLSE. One of the best actually if you don't just look at quantitative value but the business as well.
I may write a blog post on this some time. But we'll see. Not like it needs any catalyst. 2019 will start to shoot. Ill build my position in the meantime.
If we think this highway got an IRR of PLUS for example. And add in 2-3% growth per annum (in line with economy).
The valuation for it goes absolutely insane.
Of course malaysia could just die and go bankrupt, like Venezuela, in which case, we all gg anyway.
My bet, this is one of those, it takes longer than you think to happen. But when it happens, it happens faster than you think it could. Once you really understand this business and the NPV.
You wont sell. Even if it go up to 1.6 suddenly. Because you know what its really worth, and you're scared it wont come down but keep going up without you. Unless you are a trader of course.
So if you buy, you need to buy shares in 1,800 sizes, Ensuring you get all the RCULS and Warrants. Which in this case will be 1500 rculs, and 500 warrants.
So at 0.5 per RCUL. You need to pay RM750 per 1,800 shares.
May i have some question about it? Let's say if i have 72000 unit, i can get 60000 rculs and 20000 warrant if i pay 60000*0.5=RM30000 to subscribe LA is it?
So if i want convert to share, i need to pay 60000*0.34= RM 20400 within 2years, is it correct?
From my calculation here, it is worth RM2.35 per share at minimum. I may need to recalculate it to take into account the potential dilution when the RCUL and warrants are converted.
If it truly is worth that much. I can see why all the major investors are ok with the 2-3 cash calls over the last 3 years.
Imagine, if 2-3 years from now, each share is worth 2.35 or more. This is a chance for the investors to buy more shares at a cheap price.
I dont mind the cash call, as i meant to increase my position from 3% to 10% anyway. I'll probably round up my shares for the cash call. And fill up the rest with the issued warrant or RCUL.
As always, if you think any of my assumptions in it is too rich, or i am coming from the wrong perspective, or discounting any potential risk too much.
Let me know. If i'm wrong, id rather sell now.
Posted by Mar Yung Chern > Mar 27, 2018 03:19 PM | Report Abuse
Thanks,
so do you think it is worth for this rculs? but why market reaction to is as negative
not over react. they got stuck with big number of shares and now got worried as they need to dump much much more money into it. no guarantee that the future is bright...
WCEHB is only 3% in my current portfolio. Its very heavy on RCECAP and Timecom ahah.
I'm not a fan of this structure. Assuming all the warrants and RCULS is to be converted, which it will considering the timeline, the price and the prospects of the company. You are looking at a 111% dilution.
Using my most conservative estimate. And assuming all RCUL and Warrant conversion done at RM0.84 and RM1.04.
Intrinsic value of RM2.35 per share, turns into RM1.58, fully diluted.
Previously, lets say you hold 1,800 shares. At a cost of say 1.11 each. You paid RM2,000 for what is worth intrinsically, RM4,230. Margin of safety of 53%.
Lets say you fully subscribe to the cash call, convert RCUL and Warrants.
You now hold 1,800 shares, 1500 RCUL and 500 Warrants. Your cost is now,
RM2000 for the shares RM750 (0.5*1500) for the RCUL and Warrants RM510 (1500*0.34) for the conversion of RCUL RM520 (500*1.04)for the conversion of Warrants.
You paid RM3,780 for what is potentially worth RM6,042 (3,800 shares X RM1.59). Margin of safety of 38.5%. Much less lucrative imho.
But lets say, you manage to buy up more of the warrants and RCULS during the issue. Could be worth quite a bit.
The 5 year tenure of the RCUL and 10 year tenure for the warrants is insane.
Id much much rather, they just do a bog standard RI share placement. Or, sell the rimbayu and make this a pure highway co.
Posted by newbie911 > Mar 27, 2018 07:00 PM | Report Abuse
Jon choivo, ur portfolio very heavy with wce, will u suggest to buy on weakness?
For every 12 shares owned, the rights is to purchase 5 RCULS at nominal value of RM1.00 and conversion price is RM1.68. No warrants.
Is there less dilution? No, it is similar.
It is same just that there is no sweetener (warrants).
The structure is much the same, whether more shares or less shares is the same. What WCE needs to have is to raise RM634.44 million as in Page 7 of the announcement. However structure it creates, it needs to raise that amount. In fact, through this it allows the group to raise 2 to 3 times in one exercise. 1st the 50 sen, 2nd the 34 sen and perhaps warrants.
Hi Vein82k6
If one does not want to subscribe, there is a period where you can sell the "excess" shares.
Of course, do not listen to me as I have caused many not to make money through this shares.
For every 12 shares owned, the rights is to purchase 5 RCULS at nominal value of RM1.00 and conversion price is RM1.68. No warrants.
FV of 2.35, diluted will be RM2.15 ((2.35*1200)+(1.68*500)/1700)
Cost of investment: 1200 shares at RM1.11 = RM1332 500 RCULS at RM1 = RM500 Conversion of 500 RCULS RM0.68= RM340 Total: RM2171
FV after dilution: RM3660 (1700*2.15)
Margin of safety: 41%
The margin of safety remaining after using your structure is higher probably due to less cash called on a percentage basis 63% vs 89%.
In my research, when I provided for the additional funding. I did not specify if it is borrowings or equity based.
This i think, fattened up the margin of safety in my calculation a bit. Since it did not take into account the intrinsic value per share and how it will be affected if money was raised via equity while prices are at low valuations versus a loan.
This is why ladies and gentleman, you always make sure you have a large margin of safety, so that when you screw up your calculations, its still a good investment!
Having said that, I think the sheer margin of safety (37% despite using only 8%IRR and other conservative estimates such as zero growth etc) still makes this a really good investment.
I think ill buy some tomorrow. Felicity, would you prefer the warrants after the cash call, or would you rather buy more now and go through the cash call?
Basis of determining and justification for the conversion price of the RCULS The RCULS will be issued at 100% of its nominal value. The conversion price of the RCULS for each conversion period (“Conversion Period”) will be determined and fixed by the Board, and announced by the Company at a later date (“Price-Fixing Date”) after the receipt of all relevant approvals for the Proposed Rights Issue but before the Entitlement Date. The conversion price will be determined after taking into consideration, among others, the following:- (i) the theoretical ex-rights price (“TERP”) of WCEHB Shares, calculated based on the five (5)-day volume weighted average market price (“VWAMP”) of WCEHB Shares immediately preceding the Price-Fixing Date; (ii) the conversion price for each Conversion Period will be at a discount of at least 15% to the TERP; (iii) the historical share price movement of WCEHB Shares; (iv) the earnings potential of WCEHB and its subsidiary companies (“WCEHB Group”) as well as its 40% associate company, namely Radiant Pillar Sdn Bhd (“RPSB”); and (v) the overall funding requirements of WCEHB Group over the next five (5) years.
Look at Item (ii) - conversion price will be at discount of at least 15%.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
shareinvestor88
3,404 posts
Posted by shareinvestor88 > 2018-02-25 12:28 | Report Abuse
Sell TP 50c