Comparing Warrants: Learning from Alan Voon, the Warrant Specialist

PBBANK Warrants Comparison

Written by Alan Voon

Saturday, 18 July 2009 12:27

The share price of Public Bank has been rising significantly since the beginning of July 2009.  From a price of about RM9.00 in early July, the share price of Public Bank has risen more than 12% to RM10.10 at the closing on July 17 2009. Public Bank is expected to announce its half year results soon and investors who wish to speculate on further upside of Public Bank upon announcement of its results can consider the call warrants of Pulblic Bank that are listed on Bursa Malaysia.  There are three Public Bank call warrants which are still trading in Bursa Malaysia now.  There are PBBANK-CH and PBBANK-CJ issued by CIMB and PBBANK-CK issued by OSK.  With the exception of PBBANK-CH which is an American style warrant, the two other warrants are European style where holders can only exercise the warrants on expiry.  The following tables are the prices and indicators of all three Public Bank warrants. PBBANK-CH PBBANK-CJ PBBANK-CK Warrant Price (RM) : 0.03 0.61 0.195 Underlying Share Price (RM) : 10.10 10.10 10.10 Exercise Ratio : 10 4 8 Exercise Price (RM) : 9.85 7.50 8.80 Expiry Date : 3/9/2009 29/9/2010 7/4/2010 Premium : 0.50% -1.58% 2.57% Gearing : 33.67 4.14 6.47 Underlying Historical Volatility : 15% 15% 15% Implied Volatility : 12% 27% 31% Delta : 0.70 0.80 0.70 Effective Gearing : 23.6 3.3 4.5 From the table above, we note that PBBANK-CJ is actually trading at a slight discount.  Is there an arbitrage opportunity for Public Bank shareholders? The answer is no because this is an European style warrant and its holder cannot exercise the warrant immediately.  Given the generous dividend payout of Public Bank in the past and expected in the near future, PBBANK-CJ holder will lose out by not getting any dividend benefit and hence it is trading at a discount although a very small one.  If you plan to hold PBBANK-CJ until expiry, there is actually no discount because the expected annual dividend yield of Public Bank is closer to 5% and the warrant has more than one year to expiry. For punters who wish to punt on results rally, PBBANK-CH is the best choice of the three due to its much higher effective gearing and low implied volatility.  Based on an effective gearing of 23.6 times, if the mother share rises 10%, the warrant should rise 2.36 times in theory.  This warrant has just become in the money after the big rise in mother share the last few weeks and is now the most attractive punt of the three warrants.  However, it can also be the riskiest if Public Bank share drops back soon on possible correction.  If the retracement is substantial and the mother share drops below the exercise price, holder of PBBANK-CH may not have enough time to recapture intrinsic value since the warrat is expiring in a little more than 1 month.  High Risk High Gain! PBBANK-CK is probably the least favoured.  Its valuation is not excessive but in terms of premium and implied volatility, it is the most expensive of the three. Alan Voon Warrants Specialist alan@warrantscapital.com July 18 2009 This article is for information and education only.  It is not a recommendation to buy or sell any securities mentioned in the article. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned. http://www.warrants.com.my/english2/index.php?option=com_content&view=article&id=74:pbbank&catid=42:articles-3month

Malaysia's Petronas posts 54 pct profit rise; warns of 2012

By Min Hun Fong and Viparat Jantraprap

KUALA LUMPUR | Thu Dec 1, 2011 5:40am EST

Dec 1 (Reuters) - Malaysia's state oil firm Petronas posted a 54 percent increase in second-quarter profit on Thursday, helped by better crude oil prices and a stronger dollar.

The company warned however, the trend would not continue into next year. Petronas' president and CEO, Shamsul Azhar Abbas, told reporters that higher market volatility stemming from the price of oil, the eurozone crisis and an uncertain American recovery would impact its bottomline.

"I will not be surprised if the second recession were to come next year," he said.

Petronas was on track to meet its full-year pretax profit forecast of 70 billion ringgit ($22.02 billion) to 75 billion ringgit ($23.60 billion) for its nine-month fiscal year ending Dec. 31, Shamsul added.

Petronas reported a second-quarter net profit of 18.3 billion ringgit, which was 53 percent higher than the 11.9 billion ringgit from a year ago.

At the same time, Petronas said it was looking to cast a wider net around oil and gas assets in the region and has put in a bid for exploratory rights in Myanmar's on-shore blocks.

"At the moment in Myanmar we are only offshore and the business has been quite good," executive vice president of exploration and production, Wee Yiaw Hin said. "There has been recently a bid on the onshore block and we are looking at opportunities to go onshore in Myanmar."

Wee said the bidding process will end some time next year. He added that he was not aware of any other Malaysian companies bidding for the same blocks.

Petronas is facing depleting oil and gas reserves in Malaysia and has stepped up its deep-water exploratory activities as well as re-exploring marginal fields.

Meanwhile, Shamsul said Petronas was contemplating entering Japan's power industry because of the island nation's commitment to reduce its dependency on nuclear power.

Petronas bought a 30 percent stake in Singapore power concern GMR Energy (Singapore) Pte Ltd, which was its first foray into the international power business.

NORMALISATION OF GAS SUPPLY

Shamsul said Petronas has taken a number of steps to normalise the supply of natural gas in Malaysia, which has crippled the power production sector in the country.

A disruption in the supply of gas since the second quarter of this year has forced national power producer Tenaga Nasional to switch to more expensive alternative fuels.

Shamsul said Petronas would help pay for a third of the additional fuel cost incurred from the gas shortage but "would not fund inefficiencies."

"We need to ascertain from Tenaga whether (the additional fuel cost is) 3 billion ringgit...and not due to their own inefficiencies. We are not prepared to fund inefficiencies," Shamsul said.

He said the company was in the planning stages of building another regassification plant in Lumut, Perak, in addition to two plants already under construction.

The regassification plant in Melaka is expected to come online in the second half of 2012.

Shamsul said the gas supply disruption in Malaysia was expected to continue until the Melaka plant was in operation. Malaysia's energy minister had earlier said that the disruption would last "two to three months."

Petronas was also fast-tracking the construction of two floating natural gas production plants in East Malaysia, which will come online by 2016.

($1 = 3.1785 Malaysian ringgit) (Reporting by Min Hun Fong)

http://www.reuters.com/article/2011/12/01/petronas-idUSL4E7N11YH20111201

Petronas finds "significant" oil off Malaysia's Sabah

Tue Nov 15, 2011 3:56am EST

* Reserves of 227 mln boe, oil output rate of 8,200 bpd

* Estimated reserves have upside potential - Petronas

* Sabah has 12 pct Malaysia's gas reserves, 25 pct of oil-analyst 

By Min Hun Fong

KUALA LUMPUR, Nov 15 (Reuters) - Malaysia's Petronas discovered oil offshore Sabah in the latest "significant" find this year in the hydrocarbon-rich state on Borneo island, as the national oil company sets to boost reserves and output amid easing production costs.

Initial estimates put the well's reserves at 227 million barrels of oil equivalent (boe) and tests in three different reservoirs yielded a maximum output rate of 8,200 barrels per day (bpd), Petroliam Nasional Bhd (Petronas) said on Tuesday.

Petronas' exploration and production arm, Petronas Carigali Sdn Bhd, is the sole equity holder of the production-sharing contract (PSC) for the block. Wakid-1 is the second well drilled in the block. The first, Tambuku-1, yielded only minor gas discovery, Petronas said in a statement.

"Petronas Carigali plans to further appraise the discovery in the near future," it said, adding that the estimated reserves have upside potential.

The oil find comes four months after Petronas said it has discovered significant gas in the shallow waters off the coast of Borneo island.

Sabah has about 11 trillion cubic feet (tcf) of gas and 1.5 billion barrels of oil in its reserves, representing about 12 percent and 25 percent of Malaysia's gas and oil reserves respectively, said FACTS Global Energy analyst H.S. Yen.

Subramanya Bettadapura, Director of Energy & Power Systems at consultancy Frost & Sullivan Asia Pacific, said the East Malaysian state has potential gas reserves of 10 tcf and oil reserves of 2 billion barrels on a conservative estimate.

"The new discoveries indicate that there's a lot more oil out there," said Yen. "Since Petronas has a stake in all fields either through total equity (in the case of Wakid-1) or through its cemented position in all Malaysian PSCs, any oil/gas discovery is good for Petronas."

Crude oil output in Southeast Asia's second-biggest oil and gas producer is seen rising 3.3 percent next year, reversing a decline in 2011, and liquefied natural gas production may rise, the government said last month.

Oil production is expected to recover to 620,000 bpd, after an estimated 6 percent drop this year to 600,000 bpd, extending a 3.1 percent fall in 2010, it said.

SEEKING BEST RETURNS

Shamsul Azhar Abbas, who became Petronas chief executive last year, has led the producer to rejuvenate domestic fields and drill in deeper waters at home, while seeking to "high grade" its global operations by acquiring more valuable assets in Asia, West Africa and South America and exiting from less profitable ventures such as Algeria.

"Petronas is putting capital where they can get better returns for the risk involved," said Andrew Wong, associate director at Standard & Poor's in Singapore. "It recognises that certain areas such as the Middle East and North Africa are a bit more volatile and present higher risks."

Last week, Royal Dutch Shell and Petronas agreed to bolster output at fields off Sarawak and Sabah, as Malaysia works on coaxing more oil out of matured wells to stem a natural decline via projects that may lead to an additional 90,000 to 100,000 bpd of crude.

The development of the existing fields of Baram Delta off Sarawak and North Sabah using enhanced oil recovery technology will increase the nation's reserves just as drilling costs taper off amid a global economic slowdown while oil prices stay high.

U.S. crude is up 7.1 percent this year, poised for a third year of gains after climbing 15 percent in 2010 and 78 percent in 2009.

"Petronas is developing Labuan and Sabah region as the deepwater regional hub," said Bettadapura of Frost & Sullivan.

"As many as seven deepwater fields are being developed around this region. The Sabah-Sarawak Pipeline and the Sabah Oil & Gas Terminal are major investments in the region to exploit the hydrocarbon reserves in Sabah." (Additional reporting by Jane Lee and Florence Tan in SINGAPORE; Editing by Ramthan Hussain)

http://www.reuters.com/article/2011/11/15/petronas-idUSL3E7MF0GF20111115

S&P: takes action on three Malaysian GREs

Thu Jul 28, 2011 1:01am EDT

(The following was released by the rating agency)

-- On July, 27, 2011, Standard & Poor's Ratings Services lowered the local currency sovereign rating on Malaysia to 'A' from 'A+'.

-- We are, therefore, taking rating actions on three GREs: PETRONAS, Axiata, and Telekom Malaysia.

-- The sovereign rating action has no rating impact on any other corporate entity that we rate in Malaysia.

SINGAPORE (Standard & Poor's) July 28, 2011--Standard & Poor's Ratings Services said today that it took various rating actions on three Malaysian government-related entities (GREs) after the sovereign rating action on Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; axAA+/axA-1) (see "Malaysia 'A-' FC Rating Affirmed; Local Currency Rating Lowered To 'A' From 'A+' On Revised Methodology; Outlook Stable," published on July 27, 2011, on RatingsDirect on the Global Credit Portal) as follows:

To From

Downgraded

Petroliam Nasional Bhd. (PETRONAS)

Local currency rating A/Stable/-- A+/Stable/--

ASEAN scale rating axAA+/-- axAAA/--

Axiata Group Bhd.

Foreign currency rating BBB/Stable/-- BBB+/Stable/--

Local currency rating BBB/Stable/-- BBB+/Stable/--

ASEAN scale rating axA/-- axA+/--

Senior unsecured notes BBB- BBB

CreditWatch Action

To From

Telekom Malaysia Bhd. (TM)

Foreign currency rating A-/Watch Neg/-- A-/Stable/--

Local currency rating A-/Watch Neg/-- A-/Stable/--

ASEAN scale rating axAA/Watch Neg axAA/--

Senior unsecured notes A-/Watch Neg A-

Affirmed

Petroliam Nasional Bhd.

Foreign currency rating A-/Stable/--

Senior unsecured notes A-

We lowered the local currency rating on PETRONAS to reflect the company's critical role and integral link with the Malaysian government and its sensitivity to government intervention. We equalized the long-term corporate credit rating on PETRONAS with the sovereign credit rating on Malaysia. We assessed PETRONAS' stand-alone credit profile to be 'aa-'.

We downgraded Axiata to reflect the sovereign local currency rating action because our ratings on the company factor in our view of extraordinary government support. According to our GRE methodology, we have now equalized the ratings on Axiata with our assessment of its stand-alone credit profile of 'bbb'. We continue to believe there is a "moderate" likelihood that the Malaysian government, through its investment holding arm Khazanah Nasional Bhd., would provide timely and sufficient extraordinary support to Axiata in the event of financial distress. This is based on our view that Axiata has a "strong" link with the government, although it has a "limited" role in Malaysia's economy compared with that of other Malaysian GREs.

We consider TM to have a "strong" link with, and an "important" role to, the government. We, therefore, believe there is a "moderately high" likelihood of extraordinary government support to TM, whose stand-alone credit profile we assess to be 'bbb+'. We will resolve the CreditWatch placement on TM, in which Khazanah owns 28.7%, based on our assessment of the company's stand-alone profile and the sustainability of the recent improvement in its financial metrics. A CreditWatch with negative implications indicates that we could lower or affirm the ratings in the next 90 days. Given TM's strong business risk profile, we will consider the company's financial policies in light of its investment and funding plans for the next couple of years.

The sovereign rating action does not affect the ratings on any other corporate entities that Standard & Poor's rates in Malaysia, either privately owned or GREs. These entities include Tenaga Nasional Bhd. (BBB+/Stable/--; axA+/axA-1) and AmanahRaya Real Estate Investment Trust (BBB-/Negative/--; axBBB+/--).

RELATED CRITERIA AND RESEARCH

-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

http://www.reuters.com/article/2011/07/28/markets-ratings-malaysiangre-idUSWNA497420110728

Malaysia eyes first gas in 2013 for $5.1 bln project

Tue Aug 23, 2011 2:57am EDT

* Petronas to develop nine offshore marginal gas fields

* Will also build a 200 km pipeline to transport gas

* Says subsidised gas prices have curbed investment

* Says offshore production facilities running at full capacity 

By Niluksi Koswanage

KUALA LUMPUR, Aug 23 (Reuters) - National energy company Petronas will develop a $5.1 billion gas project off Malaysia's east coast with first delivery expected in two years, helping to bolster the country's slowing output and meet soaring power demand.

The North Malay Basin project was unveiled on Tuesday as the Southeast Asian gas exporter faces a shortage due to frequent maintenance shutdowns, forcing state utility Tenaga Nasional to import costly fuels for power generation.

The new project comprises nine discovered gas fields about 300 kilometres (186 miles) off the east coast of peninsula Malaysia. Petronas will also develop a 200 km pipeline to transport the gas from the fields to Terengganu state.

The project is part of a greater drive to secure gas including that with high CO2 content and from marginal domestic fields, as well as taking stakes in overseas fields with an eye for LNG production.

Petronas recently made two other gas discoveries in shallow waters off the Borneo coast, and inked preliminary deals with Qatargas to supply 1.5 million tonnes of liquefied natural gas (LNG) annually over 20 years.

"Petronas expects the additional volume of gas from the North Malay basin project would help sustain supply to its customers in peninsula Malaysia," it said in a statement.

"The project, which entails numerous upstream commitments, is expected to encourage more investments by industry players."

Petronas and its production sharing partners will accelerate the process with first delivery of 100 million standard cubic feet (mmscfd) of gas per day expected by 2013, ramping up to 250 mmscfd by 2015, the company said.

It did not name its partners in the project but Petronas has previously inked production sharing contracts (PSCs) with the likes of oil majors Exxon Mobil Corp and Royal Dutch Shell (RDSa.L).

Shares in Petronas Gas , which controls the gas production facilities and pipelines in the country, rose 0.5 percent to 13.5 ringgit by midday.

LOW GAS PRICES CURB INVESTMENT

Gas demand from Malaysia, the world's No.2 LNG exporter behind Qatar but fell to third place last year, has risen by more than 30 percent thanks to regulated domestic prices that are significantly lower than global market rates.

Prime Minister Najib Razak's government has pledged to raise gas prices every six months, making it more economically feasible to industry players to invest in developing marginal gas fields such as the North Malay Basin project.

"The planned price reform measures will benefit Malaysia by stimulating upstream investment off the peninsular and provide the long-term price signal to ensure security of supply by attracting LNG as well," said Graham Taylor, analyst with Wood Mackenzie in Singapore.

Petronas is scheduled to complete a 3 billion ringgit regasification terminal with an annual capacity of 3.5 million tonnes on mainland Malaysia by the middle of next year. It is studying plans for the second terminal.

Petronas also has long asked for the government to allow it raise gas prices in order to reduce the hefty annual subsidies of about 18-19 billion ringgit it pays out.

"These subsidised gas prices have resulted in minimal investments in the exploration and development of gas projects by oil and gas players, constraining growth in supply capacity," the company said.

"Compounding this tight situation, Malaysia's offshore production facilities have been running at full capacity, exerting tremendous pressure on gas production systems."

Last week, Tenaga Nasional bought 130,000 tonnes of fuel oil for power generation, the third time it has bought large volumes this year, at higher price levels.

The purchases, which started in the second quarter, have been due to a prolonged gas shortage that has resulted in the country's power sector receiving a third less of its allocation by Petronas. ($1 = 2.970 Ringgit) (Additional reporting by Rebekah Kebede in PERTH; Editing by Liau Y-Singand Ramthan Hussain)

http://www.reuters.com/article/2011/08/23/malaysia-petronas-idUSL4E7JN0N020110823?type=companyNews

Malaysia's Tenaga may buy gas from open markets in 2012-report

KUALA LUMPUR | Tue Dec 13, 2011 8:31pm EST

Dec 14 (Reuters) - Malaysia's state utilities firm Tenaga Nasional may start to source gas from the international markets next year to make up for a shortfall in supply for power generation, the New Straits Times reported on Wednesday.

The paper quoted Tenaga President and Chief Executive Officer Che Khalib Mohamad Noh as saying the firm was in talks with oil majors such as Shell, Malaysia's national oil company Petronas, and private suppliers to get the best market price for gas.

The plan to source gas from the open market will be subject to approval from the government that has kept gas and electricity tariff levels low for consumers.

Tenaga officials could not be immediately reached for comment on the report.

Tenaga buys gas from Petronas at a subsidised price of 13.70 ringgit ($4.31) per million metric British thermal units (mmBtu), compared to 30 to 40 ringgit in the open markets.

That has required Petronas to fork out 20 billion ringgit annually to maintain tariff rates.

The latest move to buy gas comes as Petronas cut its subsidised gas allocation to Tenaga due to a domestic shortage, forcing the power company to import expensive distillates that have eaten into its profits.

But in early December, Tenaga said the government agreed to implement a fuel cost sharing mechanism to share extra costs incurred from buying distillates and other expensive fuels to offset the gas shortage.

The costs would be shared between Tenaga, Petronas and the government.

http://www.reuters.com/article/2011/12/14/idUSL3E7NE0B820111214?type=companyNews

UPDATE 1-Malaysia's Tenaga seeks 100,000 T Nov fuel oil

Fri Oct 7, 2011 7:53am EDT

By Yaw Yan Chong

Oct 7 (Reuters) - Malaysia's national power utility, Tenaga Nasional , has issued a tender seeking 100,000 tonnes of November-delivery fuel oil after buying similar volumes for this month, traders said on Friday.

The utility started buying large volumes of fuel oil regularly from the second quarter of this year and is expected to continue doing so until early next year, because the country's power sector has been receiving only two-thirds of its natural gas allocation from Petronas .

"They will probably have to pay more for their cargoes this time round, given the severely imbalanced state of the market currently," a Singapore-based Western trader said.

The utility is seeking four 20,000 tonne parcels and two 12,500 tonne lots of low 0.98 density, all for delivery Nov. 1-28 to Kapar in Selangor and Pasir Gudang in Johor, via the tender, which closes on Monday.

It last purchased a total of 105,000 tonnes, mostly from oil major Shell (RDSa.L), at premiums of $25-$30 a tonne to Singapore spot quotes on a free-on-board (FOB) basis.

So far, Tenaga has bought about 450,000 tonnes for April delivery onwards, mostly from Shell and European trader Mercuria.

Tenaga's demand, regarded as unexpected and irregular before April, is expected to squeeze the market for low-density cargoes, which is already tight due to a seven-month high in Western arrivals at 3.9-4.0 million tonnes for this month, leading to severe quality imbalances.

Reflecting this, the market's prompt structure has been severely backwardated for about the past three weeks since the start of the October pricing month, with October/November at seven-month highs of above $9 a tonne for the past week.

Tenaga had earlier said it has spent 400 million ringgit ($134.4 million) a month to buy power-generation fuel, draining its cash flow and eating into its reserves.

Petronas usually allocates 1,350 million standard cubic feet per day (mmscfd) of gas to the power sector. Supply has fallen below 1,000 mmscfd since the start of 2011 and now hovers between 900-950 mmscfd.

In its third-quarter financial results, Tenaga posted a net loss after it spent an additional 1.3 billion ringgit on fuel. (Editing by Jane Baird)

http://www.reuters.com/article/2011/10/07/malaysia-tenaga-fueloil-idUSL3E7L71LA20111007?type=companyNews

Malaysia's Tenaga seeks Nov fuel oil, continues rare purchase

SINGAPORE | Fri Oct 7, 2011 6:59am EDT

Oct 7 (Reuters) - Malaysian power utility Tenaga Nasional has issued a tender seeking 100,000 tonnes of fuel oil for November, after buying similar volumes for this month, traders said on Friday.

The utility is seeking four 20,000-tonne parcels and two 12,500-tonne lots of low-0.98-density. All are for delivery Nov. 1-28 to Kapar in Selangor and Pasir Gudang in Johor. The tender closes on Monday.

It only started buying large volumes of fuel oil regularly from the second-quarter this year, and is expected to continue doing so till early next year, because Petronas has cut natural gas allocation to the country's power sector by a third. (Reporting by Yaw Yan Chong; Editing by Manash Goswami)

http://www.reuters.com/article/2011/10/07/malaysia-fueloil-tender-idUSL3E7L71IO20111007

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MIDCAP-Utilities sector tops analysts' revision in Malaysia

Mon Dec 12, 2011 7:08am EST

Dec 12 (Reuters) - Malaysia's utilities are seeing earnings upgrades by analysts and the sector tops Thomson Reuters StarMine's Analyst Revisions rankings in the south east Asian country with a high score of 80.

While analysts are upbeat on the country's utilities sector, they are bearish on the materials sector, which has the lowest score of 24.

This indicates that analysts are expecting defensive sectors such as utilities to perform better than cyclical stocks, which include metals and mining companies.

Malaysia's national power producer Tenaga Nasional has the best Analysts Revision Model (ARM) score of 97 among its peers. Since Nov. 29, seven out of 21 analysts have raised their earnings estimate on the company by an average of 33.2 percent for the year ending August 2012.

On the other hand, steel producer Lion Industries Corporation Bhd has the worst ARM score of 1 in Malaysia's Materials sector. Since Nov. 30, two out of four analysts have cut their EPS estimates on the company by an average of 30.5 percent for the year ending June 2012.

CONTEXT

Malaysia's Tenaga says to share additional fuel cost with government, Petronas.

StarMine's Analyst Revisions model is a percentile ranking of stocks based on changes in analyst sentiment, with 100 representing the highest rank. This model tracks analysts' upward revisions in earnings and revenue estimates and rating changes.

On its Intrinsic Valuation model, StarMine adjusts for the usually optimistic bias in analysts' EPS forecasts and then uses the resulting growth rate and dividends to determine the valuation. (Reporting by Patturaja Murugaboopathy; Editing by Saumyadeb Chakrabarty)

http://www.reuters.com/article/2011/12/12/midcap-malaysiautilities-idUSL3E7NC3TZ20111212