Monday, December 2, 2013

GRP- one of the weirdest company I have seen

I saw a link from another blogger for GRP.

It has zero debt, and pay dividends of 2 cents since 2008, at current price of 10.4cents, dividends yield is close to 20%

What is most amazing is it generates FCF since 2008

Well, there shouldn't be FREE LUNCH, isn't it?

I decided to find out more, and I realized the reason, they have a rights cum warrant issue.




That they have a highly dilutive rights and warrants issue is not surprising, assuming all rights and warrants are exercised, which is very likely since the warrant has a low exercise price of 8 cents, the number of shares will increase from 139,407,200  to 975,850,400. A massive 7 times increase!

Then came then next surprise, the rights were issued at a whopping " approximately 73.3% to the closing price of S$0.300 per Share on the Official List of the Singapore Exchange Securities Trading Limited (the “SGX-ST”) on 6 September 2013  (being the date of this announcement)"

I am still sour about the 10% discount sabana offer to placement of shares, and I thought LMIR 50% discount of rights 3 years ago is historical. I think this must hold the record of highest discount offer.

They will receive about 33 mio from the rights and another 33 mio if the warrants are fully exercised. The rationale of this fund raising is due to a collaboration agreement with "MGS Resort & Entertainment Co., Ltd (“MGS”) for the purposes of developing and managing properties in Myanmar."

The details of the agreement is seriously lacking, I am a not shareholder and did not receive the circular which supposedly contain more information about the business. (any shareholder can share?) But what is the share of injection of funds? What is the share of profits? I seriously do not think GRP can get a wonderful deal, since 28 mio is not actually a very big sum, they might not be able to build any mega-projects.

But what really turn surprise to bewilderment is this chart:



On the day of 6 September, instead of the price falling to account for the dilution, the price actually went up from 30 cents to 43.5 cents in 9 September, with almost 48 million shares traded.

WOW! the charm of Myammar!! But on the same day of 9 September, Zhao Bingli, one of the substantial shareholder of GRP offload 5 million shares at 36.7 cents. Well it doesn't really affect the price going by the price movement over the next 2 months.

Then suddenly, as if awaken from the sleep, the stock went from 35 cents to 12.7 cents in a day, but only on volume of 9 million shares.

This company reinforced the importance of justifying quantitative data with qualitative understanding of the business.

The fabric of the company has changed. It is no longer a yield play, or no longer attractive as a yield play due to the massive dilution and pending business diversification or diworsification.

If you like a Myanmar theme play,  You have a counter with no previous track record at PE of 26 (full exercise of warrants) or 13 (No exercise of warrant), well doesn't seem too demanding if you look at Yoma and the likes. Assume distribution of 2.7 million is sustained, you will get 0.27 cents DPS.

However, it will no longer fit into my risk profile, and my goal for stable dividends. As for capital appreciation, the Hugh warrants will provide the overhang for the next 1-2 years, depending on the pace it is exercised. I will have to pass...

Sigh.... just when I thought I found a gem, when I realized there is no free lunch.

Also, even if i am indeed looking for a Myanmar play, I will most probably search further. I placed quite a high premium on  management attitude toward shareholders. I feel they are pushing the existing shareholders to a corner with their highly dilutive and aggressive discount. Also, their track records, IMO does not speak well of themselves, especially investment in the Australian gold penny stock named Aphrodite. (There is quite some discussion on value-buddies on its track record. )




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