Monday, August 19, 2013

Thoughts on SUN

SUN tripled its price in just 3 trading days.

(SUN a-blazing!)

In recent memory, Andrew Tan is the only one that comes to mind in terms of considering small-time investors in his decisions affecting his listed companies. Just in the past 6 months, Ang, Razon, Co, Lopez, et al, offered stocks at steep discount in overnight placements wrecking portfolios of the so-called 'investing public.' (Additional note to these CEO's: if you are part in wanting to encourage more FIlipinos to participate in equities, overnight placements at 10 - 20% discount vs. current price is not a way to do it). While AGI's own purchases in MEG and GERI were at +10% or so premium against current market price.

(The noble Dr Tan?)

What initially prompted the upsurge was the upcoming stock rights offer at 1 PhP, already-almost double of its price at the time of the disclosure. Afterwards, what stoked the price increase further were rumours of backdoor listing of first the Emperador liquor business of Tan, then Traveller's, then now McDonald's.

The other thing that's commendable in Tan and his board is their guarding the secret of this stock rights plan. Everyone (big and small investors) mostly started at equal footing. Those who diligently saw the disclosure early, and bravely decided to make the gamble deserved the profits.

But the question now is whether it is still good for risk/reward to come in an invest in SUN after the 300% increase. These are the things to consider:

1) It is indeed more expensive to do an IPO than backdoor. If there's going to be indeed a backdoor play,

  • a) I dont believe it will be for Traveller's. Why go through preparing and spending for IPO (which THI is already ready but held-off only because of current volatility in the market) and then suddenly choose the backdoor route? I think somewhere somehow this is illegal if not simply unethical for Tan to do. 
  • b) If it's going to be McDo or Emperador, then the price of this stock will go further, tremendously higher. I wont even dare to choose which between the two is better, will just say that 10-fold (or 10 PhP per share) is definite with either. Both companies are also displaying poise to expand aggressively, so both are fit to list in the PSE. 
  • c) There's also a rumor that Stanly Ho (who is still holding positions in SUN) is planning to infuse a company in SUN. This is the one scenario I cant fully grasp. Why would Stanly compete with his son who's already front and center of the operations at MCP? Is there really so much room for so many casinoes for the Manila?

2) Or this could just be stock rights after all and nothing more.

  • a) We are weeks in the Ghost Month, next to a steep downturn, and everyone is hungry for storied [and affectionally called] basura stocks. The crowd could just be ganging up on this one issue out of that urge to play one bazur. 
  • b) There are only specific brokers like Sincere (what a nice name for a broker, by the way) who are buying up, who either knows the true score, or is part of another evil group who are tasked to pump and dump, like how the original BW scam (and also the hit on CAL) was done
  • c) Perhaps the wily investors you see at forums are at it again to take your money and leave you holding the bag at a high price after clarity is released that there will be no backdoor play. (There's a reason why PSE is seeking out SUN daily to give reason/s for ceiling prices. There are already previous news that regulators disdain what was done in backdoor plays for CPG, COSCO, et al in the past). 
  • d) Perhaps investors that are left at a high price during SUN's BW past is using this opportunity to jack-up price and exit bigger positions. This goes back to Stanly Ho who reportedly still have positions with prices at 100 PhP/share. Well, it's a long way to get to that level!
  • e) Or Tan just wants to dilute the holdings of previous owners of SUN to remove all the bad rep (see below), before he grows this company further? In this case, Tan would not care what price SUN will be in after the stock rights. 

As always, there's no definite picture that can be used as a guide for our move this week. But personally, Im leaning towards Andrew Tan not doing any thing 'cheap' (oxymoron, how can you be cheap if that move can earn big?) and underhanded just to get a few billions more in paper wealth for himself (a la Lucio Co in MMI and APM). If he'll do backdoor, he should announce it within the month and not constantly have disclosures saying "we're not aware of any material transaction that would affect unusual increase in stock price eklat." If youre willing to bet, youll know the result of your bet in the near future.

I was ready to bet a tranche of 20 K PhP before ceiling was reached the first day, but what personally held me off is SUN's own history.  Even up to now, I still believe Andrew Tan shouldn't have bought BW Resources; he already has MEG and ELI (in fact, I think ELI has some overlaps in terms of vision and market with SUN). The stain on this stock that almost brought down our economy shall be forever with it. Dante Tan and Erap himself still might have positions in SUN. (if you still haven't, best to google and read up Dante Tan and BW Resources to know and cringe more).

So, therefore... as is the common advise dispensed nowadays, if you want to bet, bet only the money that you'll be comfortable losing a big chunk out of. I would say, bet the money that you're willing to lose 50% in one trading day (if youre not fast to cut). Weigh risk/reward. The one route you can still earn big in SUN is when 1 b) happens; the rest of the scenarios offer risks.

I guess, as a specific move, if you bet tomorrow, take already a 10% gain; +20% at best. You can stay days if you have time to monitor (remember, sell-downs can happen any minute during trading). And then when you see -10%, cut! Just admit youre too late.

I still dont know myself if I'll bet in SUN. Probably not, because 1) I may not have the time to look at SUN's ticker all day and 2) MBT I think is a better bet--a bet the foreigners will return in this issue this week (considering stock divs ex date and current cheap valuation).

Best of luck!

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