Sunday, October 25, 2009

Conflicting message by E&O insiders

CIMB issued a report asking their shareholders to sell E&O and buy rights to ICSLS(Irredemable convertible secured load stock). At that the point of their writing, E&O ordinary shares was quoted at $1.27 on 22 Oct, based on rights to buy ICSLS of $0.65, the intrinsic value,they argued, was $0.635(click on the image to see their working). The ordinary shares went under water as it went down further to $1.23 on Friday - theoretically in a bear territory(21% from recent high of $1.57). As the share price is heavily owned by retail investor after big instituitions like Goldman Sachs, Merill Lynch and etc exited the company at the height of 2008 financial panic. The selling pressure may persist as retail investors tend to be trend oriented -- overshooting on the way up or way down.

Kok Meng Chow, E&O's Finance Director, disposed 107,200 shares of E&O-LR. What is she thinking? As at 23 Oct, she still has another 350,050 E&R-LR shares. She exercised her ESOS of 250,000 shares of E&O ordinary shares early of this month. Her position as at 8/10/09 was 914,500 shares, I estimated she disposed around 1.5 mln shares in the last 2 months.

Kamil Ahmad Merican converted his 150,000 shares of E&O-LA on 9 Oct. After the conversion, he has 1.2 mln E&O ordinary shares.

Chan Kok Leong, an Executive Director exercised his ESOS of 1.2 mln adding his stake to 4.7 mln shares as at 28/09/09.

Tham Ka Hon, a large owner, has been busy converting his ICULS shares to ordinary shares. He also acquired a few millions E&O ordinary shares through 9 Oct. He has increased his interest from 17.92% to 20.54%.

I will not argue too much with CIMB pegging a fair value of $1.89. The major owners think the long term value remains bright. The Finance director is a mirror of short-term trading sentiment - bearish/cashing out. Up to this point, I was unclear of the cause-effect, was poor showing of E&O-LR putting pressure on E&O or the other way round. It will be interesting to find out at the opening bell.

Disclosure: No position yet.

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