Lack of catalyst to buy Asian Pac warrants
Alan Voon 
Fortune Perdana Lakeside Residences is one of Asian Pac’s property development projects in the Klang Valley

WHEN the rights issue of Asian Pac Holdings Bhd was undersubscribed by a considerable margin, the company’s major shareholder, low profile businessman Mah Sau Cheong who held some 18% stake in the company, consolidated his control by taking up most of the excess rights application.

The rights issue of RM99.26 mil nominal value of five-year 3% irredeemable convertible unsecured loan stocks (ICULS) was priced at RM1 per share. With a conversion ratio of one ICULS for five shares, the rights issue pricing was not too attractive for shareholders as ICULS normally trade at a discount to conversion.

However, shareholders who subscribed for the rights issue would not lose money since the combined value of the two warrants that come with the subscription of one ICULS exceeds the RM1 subscription price.

As of Nov 1, the share price of Asian Pac was last traded at 18 sen while the ICULS (ASIAPAC-LC) and warrant (ASIAPAC-WB) closed at 93 sen and 8.5 sen respectively.

According to Asian Pac’s latest annual report (FYE 3/17), Mah held a total of 58.8 million ASIAPAC-LC, representing 60.2% of all ICULS outstanding. Additionally, he held 117.6 million ASIAPAC-WB or 59.2% of all warrants outstanding.

If he chooses to convert all his ICULS and exercises all his warrants, he would end up with a stake of about 35% of the enlarged capital of the company.

It is interesting to note that while there were 16,160 shareholders as recorded by the company’s annual report, there were only 880 ICULS holders and 870 warrant holders. This meant that an overwhelming majority of shareholders did not subscribe for the rights issue.

The Asian Pac group is principally engaged in property development and investment, shopping mall and carpark operations. In the first quarter (Q1) of FYE 3/18 ended June 30, Asian Pac suffered a 16% revenue decline to RM51.09 mil from RM60.79 mil in the corresponding period a year ago.

Nevertheless, the company’s net profit more than doubled to RM3.85 mil from RM1.69 mil previously.

Asian Pac indicated in the notes accompanying its financial results that lower revenue in the current quarter was mainly due to lower revenue recognised by its property development division due to the lower percentage of work completed even though its mall and car park operations experienced revenue growth.

Nevertheless, the higher profit recorded in Q1 compared with the same period a year ago was mainly due to lower adjustment for property development cost at group level.

On its future prospects, Asian Pac expects the performance of its mall and carpark operations to continue improving and is cautiously optimistic of its property development division’s performance due to the current lacklustre demand for residential and commercial properties.

ASIAPAC-WB is currently trading at a relatively steep premium of 86.1%. The warrant is also theoretically expensive as its implied volatility of 65.2% is much higher than the mother share’s historical volatility of 46.4%.

Despite the share price seemingly undervalued compared to its net asset per share of 95 sen, there is a lack of catalyst to buy into the warrant now unless the mother share surges in the short term.

The writer is CEO of Warrants Capital Sdn Bhd

This article first appeared in Focus Malaysia Issue 257.