Saturday, December 12, 2009

Trading Idea : BJToto-CD

I would like to close my 2009 trading idea with BJ Toto-CD. What? Call Warrant? Yes call warrant.

Why? Limited downside. When I look at that chart, the stock is only trading above 5% of the darkest moment - either we are referring to last November or March. Is this justified? Hell no.

Since this is a simple business with relatively stable growth, most analysts will get it right easily. I will just use CIMB numbers on the basis of valuation.

The company is still sound fundamentally. With coming Chinese New Year, many will try their luck to win big money, I would expect better results . From the long term cash flow generation point of view, CIMB thinks the company worth about $ 5.55(I agree), there is a potential upside of 32% from here. In terms of multiple earning, the company has been selling at the low of 12X(depressed) to 18X(optimistic) historically. I think the weak consumer spending thesis is over-exxagerated by a lot of analysts. I am willing to bet on reversion to mean. It may not be as optimistic as 18X but just 15X will lift the share price to around $ 4.7 - $ 4.8 which is about 11-12% from $ 4.2. This may be good enough for a conservative investors. However if one has stronger appetite for risk, a 20 times gearing to magnify this 10-12% gain will be very fun.

First the warrant has 212 days before it expires. This will give us a reasonable time frame to bet the share price will reach our $ 4.70 target.

A large enough gearing of 20 x, 10-12% rise in mother share will give us at least 100% rise in call warrant(of which I have provided a very conservative expectation, theoretically should be 200-240%).

As we are paying only 9.33% premium, I would think the penalty is relatively small to bet for a potential 100% return.

Disclosure: The author has long position in BJ Toto and BJToto-CD.

A BIG WARNING!!!! : A wrong position sizing can damage or cripple your financial wealth. Please consult your investment adviser before taking any position. Derivative product is very risky and not suitable for buy and hold strategy.

1 comment:

ck5354 said...

I think bjtoto CF better than CD.

Here is my analysis, maybe I am wrong.