Posted by andy118 > 2012-02-09 11:46 | Report Abuse

KUALA LUMPUR: The DRB-HICOM Bhd put warrant, namely the DRBHCOM-HA, is a poison pill warrant, as "clueless" investors have been showing interest on the put warrant not knowing that they will only make money from the said warrant if the mother share goes down closer to the RM2.00 mark. Analysts were puzzled by the continuous interest in DRBHCOM-HA, put warrants issued by AmInvestment Bank Bhd on June 30 2011, and will be expiring end of this month. "This may be simply because of investors' lack of awareness and understanding on how a put warrant works," said an analyst from a brokerage. Currently, the more commonly issued warrants are the call warrants. Call warrants give the holder the right, but not the obligation, to buy a mother share at a pre-determined price (or commonly known as the strike price or the exercise price) by the contracted date. In contrast, put warrants give the holders the right to SELL the mother share at a pre-determined price. Simply put, an investor can make money on a call warrant if the mother share exceeds a certain price, while investors can make money on a put warrant if the mother share goes below a certain price. In DRBHCOM-HA's case, investors who bought the put warrants at 6 sen each would need the DRB-HICOM mother share to fall to RM2.12 just to break even, and RM2.11 or below in order to make money when the warrant expires (exercise price for the DRBHCOM-HA is RM2.30, with a conversion rate of 3:1). At last Friday's closing price, the mother share was traded at a 29.3 per cent premium on its put warrant. DRBHCOM-HA closed unchanged for the past four trading days at 6 sen, with more than 70 million warrants changing hands. So far this year, the warrants have depreciated by 40 per cent from 10 sen early this year. Currently, there are 100 million DRBHCOM-HA put warrants issued. However, based on analysts' feedback, it appears that it is unlikely that the mother shares will fall close to the RM2 mark. RHB Investment Bank, in its recent report, upgraded its recommendation on DRB-HICOM to outperform with a target price of RM3.45 while CIMB Investment Bank has a target price of RM4.60. A look at the five research reports issued this year revealed that target prices are between RM2.90 and RM4.60. Interestingly, the securities were suspended by AmInvestment last Monday at 2.31pm, and trading of the securities resumed 9.00am a day later. Investors remained puzzled on why the securities were suspended. At press time, AmInvestment did not reply to Business Times query on why it suspended the put warrants. Besides DRB-HICOM's put warrants, there are also six other put warrants in the stock exchange - Hong Leong Bank Bhd's HLBANK-HA, Dialog Group Bhd's DIALOG-HA, Malaysia Marine and Heavy Engineering Holdings Bhd's MHB-HA, Petronas Chemical Bhd's PCHEM-HA, Pos Malaysia Bhd's POS-HA and YTL Group Bhd's YTL-HA. All these put warrants were issued by AmInvestment. Most of them will be expiring by end of this month, while the rest (HLBANK-HA and YTL-HA) will be expiring on April 18. Read more: Interest in DRB-HICOM put warrants puzzles analysts http://www.btimes.com.my/Current_News/BTIMES/articles/drbput/Article/index_html#ixzz1lqwJl8ZN