Short Position - Pui's challenge, online betting, price cycle


Pui’s challenge fizzles out

FOR three weeks beginning Dec 18,2020, there were doubts if Batu Kawan Bhd would be successful in its offer to take over Chemical Company of Malaysia Bhd (CCM).

This is following the emergence of low-profile seasoned investor Pui Cheng Wui in CCM with a 16.12% stake.

If Pui did not accept the offer, Batu Kawan would not be able to reach the 90% acceptance level threshold to take CCM off Bursa Malaysia.

Pui purchased the shares, amounting to 27.56 million, from the open market. The amount is staggering and would have cost Pui some RM83mil, assuming he purchased the shares at RM3.08 each. Batu Kawan’s offer for CCM was RM3.10 per share, hence leaving him a two sen margin.

The plantation group launched the offer on Nov 17,2020, after buying a 56.32% stake from Permodalan Nasional Bhd (PNB). Batu Kawan appeared to have everything sewn up until the emergence of Pui as a substantial shareholder on Dec 18.

Pui’s entry in CCM was seen as an attempt to seek a higher price from Batu Kawan. The independent advisers felt that the offer was under priced but reasonable considering the trading trend of CCM.

However, on Jan 4 this year Pui sold his block. When Pui sold his 16.12%, Batu Kawan had already amassed some 61% in CCM. In the latest announcement it had 92.14% of CCM.

If Pui had held on to the block of shares, it could possible be a battle that drags on for years. Assuming Batu Kawan mops up the rest of the shares except for Pui’s block, the company would not fulfil the free float requirement of Bursa Malaysia and would have to be suspended.

The shares of a company that is suspended is really of little use to its beneficial owner. Banks are generally do not accept the shares as collateral and it is cannot be sold easily. Pui probably read the trend and disposed of his block by accepting the offer.

Pui would have made some money. But not as much as it could have been had Batu Kawan been forced to revise the offer.

Online betting

ONCE again, legal gaming and number forecast operators (NFOs) are on the backtrack. The second movement control order (MCO 2.0) is going to hit their takings and by virtue of that, the government will see a correlated drop in tax revenues from the operators. And just like the first movement control order (MCO), the illegal operators will benefit as they operate largely in the online world.

As people move to do more things online, they naturally would turn to online gaming sites.

Most of these sites are run illegally – they are unlicensed and do not contribute any tax to the government, unlike the licensed gaming and NFOs.

Analysts are expecting a significant hit to the earnings of the latter. NFO’s can’t operate in states under the MCO while those allowed to operate in the conditional MCO and recovery MCO states will likely see a sharp decline in patrons due to the pandemic.

The punters have an avenue to go online via legalised platforms run by NFOs. After all, digital platforms are the very lifeline of life in lockdowns globally, be in ordering food or conducting meetings.

The government should facilitate the right parties to operate either a single platform or platforms by the legalised NFO players.

The parties will ensure that the government’s best interest is taken care of when draws go online.

There should also be a thorough know your customer system in place. Reporting levels also ought to be in place to avoid activities like money laundering.

This way, not only would illegal online platforms be less attractive, it would also mean more tax revenues to the government and finally, an option for the man on the street to do his or her betting online and thus limiting movements during the pandemic.

Lack of options a gain

WHEN the glove stocks were the rage of the stock market last year, they rallied strongly with the large players chalking up huge gains amid a downturn in the stock market.

The first movement control order (MCO), which forced businesses to shut and the loan moratorium that put more money in the hands of punters, led to a liquidity rally not seen on Bursa Malaysia in a long time just as the country was emerging from a devastating second quarter which saw the GDP shrink by 17.1%.

Penny stocks and those associated with the healthcare play were the vogue of punters.

As investors were looking to capitalise on the healthcare play, the technology stocks carried on with their steady rise.The same is seen in the plantation stocks where only the large and liquid names have benefited from the super strong price of crude palm oil.

The hanging question is when will the price cycle end?

As the interest in healthcare stocks start to wane, the Bursa Malaysia Technology Index, which rose by 84% last year, continued with its steady uptrend.

The tech counters have punched upwards, which brings about the question whether they, as a group, have seen valuations stretched to lofty levels.

Other cyclical sectors that have far greater linkages with the domestic economy are stuttering.

The fresh MCO, together with heightened uncertainty, is casting a pall on the stock market but liquidity is continuing to find a home in the charging tech counters.

The valuations of a lot of the tech stocks are frothy but the lack of rotation into other plays suggests there is little option for investors to take a bet on.

As those counters continue to move upward, there will be increasing questions of whether the fundamentals have been stretched. But it also illustrates the problem the market is digesting.

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Short position , Pui , CCM , Online betting , gloves ,


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