Fintec gained 1.5 sens (+10.7%) on Wednesday with volume of 149.8 million. Fintec is currently forming its sub-wave v. If the magnitude of sub-wave v were to be the same as that of sub-wave i of +100%, very likely sub-wave v will end around 23 sens. It is also possible that it may take the magnitude of sub-wave iii of +300%, then 46 sens could be the target (too optimistic?).
Fintec has been losing money for a long time in its main business of biotechnology products and services. However its technology incubation segment managed to turn in positive earnings since the second quarter of 2019, mainly from fair value gained (market value) of those listed companies under its incubation program. These companies are AT(S), DGB, Focus Dynamic, Mlabs, Netx and Vsolar. Besides these 6 listed companies, Fintec also invested in another 3 listed companies namely Komark, Secera and TNB.
Fintec's earnings since second quarter 2019 are as shown below:
The main contributor to the fair gained during each respective quarter is Fintec's 25.3% (517.2 million shares) holding in Focus Dynamics Group Bhd. The price of Focus at the end of each quarters are as shown below:
Fintec is about to announce its earning for quarter ending 30 June 2020. Based on fair value gained of Rm139.5 million, my estimate for the earning is about 12 sens a share with net assets at 60 sens.
If Focus can maintain its today's price of Rm2.45 until 30/9/2020, the fair value gained will be Rm842.2 million, its earning can go more than 50 sens a share with net assets exceeding Rm1.00.
The only problem with earning from fair value gained is that this is only an accounting or paper gained. The moment Focus's share price collapsed, Fintec will report big losses in earnings.
Fintec-WB and Fintec-PA
Fintec closed at 15.5 sens today.
Fintec warrant B will mature on 12/4/2022. Its conversion price is 15 sens. It closed at 7 sens today. Premium is +42%
Fintec-PA (Irredeemable Convertible Preference Share) with face value of 8 sens will mature on 4/12/2027. Two Fintec-PA can be converted into one Fintec share OR one Fintec-PA plus cash 8 sens can be converted into one Fintec share. Fintec-PA closed at 7.5 sens today. Two Fintec-PA cost only 15 sens. One Fintec-PA + 8 sens = 15.5 sens. Zero premium.
Fintec-PA rightfully can be viewed as a warrant with conversion price at
8 sens. When Fintec is less than 16 sens, it is more advantages to use
two Fintec-PA to exchange for one Fintec share. The moment Fintec is
more than 16 sens, it is more logical to use one Fintec-PA plus cash of 8 sens to exchange for one fintec share.
Based on the above argument, there is no reason to buy Fintec-WB at 7 sens (conversion at 15 sens) when Fintec-PA is available at 7.5 sens. In fact if one expect Fintec to move above 16 sens, it is more profitable to buy Fintec-PA especially when it is selling at half the price of Fintec.
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