In just over six weeks, DISA's share price has lost about 60%, falling from 3.1 cents (11 May closing) to 1.2 cents this morning (28 June).
What gives?
Investors point to the looming expiry of DISA warrants on 2 Aug 2017, which is about 5 weeks from now.
These warrants can be converted into shares at 0.7 cent a warrant, or $7 per lot of 1,000 warrants.
Holders of DISA shares would be motivated to exercise DISA warrants they hold since the mother shares have been trading way above the warrant conversion price.
But because there is not much liquidity for the warrants, DISA shareholders may sell their shares in order to raise money to pay for the conversion of the warrants. (Such sellers either do not want to put extra money into their investment of DISA or are short of funds).
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Key data |
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Warrants expiry |
2 Aug |
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Warrants exercise price |
0.7 c |
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No. of warrants outstanding |
2.9 |
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No. of shares outstanding |
7.17 billion |
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Recent stock price |
1.2 c |
There are nearly 2.9 billion (unexercised) warrants of DISA out there currently.
We can do some guessing about how many holders of the warrants will sell the mother shares in order to fund the conversion of the warrants.
Let's create 3 scenarios (out of many possible ones):
♦ Scenario A: If you think holders of 1.5 billion warrants would sell their mother shares ... so about $10.5 million would need to be raised (ie 1.5 billion x 0.7 cents) for them to convert their warrants.
♦ Scenario B: If it's holders of 2 billion warrants... so about $14 million would be raised (ie 2 billion x 0.7 cents).
♦ Scenario C: If it's holders of 2.5 billion warrants ... so about $17.5 million would be raised (ie, 2.5 billion x 0.7 cents).
Consider the volume of DISA shares traded in the past 15 trading days (ie, 6 June - 27 June). It adds up to about 1.2 billion shares.
Let's take 1.8 cent as the average traded price. That means about $22 million worth of shares traded.
We can't assume the $22 million of shares traded arose entirely from the selling by shareholders to raise funds to convert their warrants.
(There would be other good reasons for the share price plunge: (1) profit-taking, (2) cut loss by those who bought at higher prices, (3) short-selling, (4) weakened demand from potential buyers whose buying sentiment has been affected).
We have to make some guesses as to how much of the $22 million share traded was for warrant conversion.
If we think $11 million was raised solely by people to pay to convert their warrants.... and if we think that Scenario A (as outlined earlier) applies, then the selling of DISA shares is about done (by this group of shareholders).
If we think Scenario C applies, then the selling of DISA shares is about two-thirds completed.
But if Scenario C applies, it does not necessarily mean the share price of DISA will fall lower -- because there could be buyers who now find it attractive enough to buy and provide support.
(There are many permutations to this guesswork approach!)
| Let's look at this from another perspective, which I think puts us on firmer ground: What was the market valuing DISA for a significant period of time prior to the sell-down? Shall we assume that valuation was rational and fair? Between late Jan 2017 and mid-May 2017, the market valued DISA at about S$215 million (as the stock traded around 3 cents a share then, and there were about 7.17 billion shares outstanding).
With this significant dilution, on a $215-million market value, DISA shares would be worth 2.1 cents apiece. Of course, no one can be certain that the market value of DISA would reflate to $215 million after 2 Aug. It could stay low, or go lower, or rise. So is the current 1.2-cent level attractive enough as an entry price? What do you think? (If the $20 million cash from the warrants conversion is considered, one may adjust the market value of DISA to $235 million and the theoretical share price to 2.35 cents). At 1.2 cents, post-warrant conversion deadline in August, Disa's market cap would be 10 b shares x 1.2 cents = S$120 m. (Currently, market cap is 7.17 b shares x 1.2 cents = S$86 million). DISA will soon be sitting on a lot of cash: It's $40 m or so, by Maybank Kim Eng's estimate ($19 m on balance sheet as at end-Mar 2017 plus $21 m from 3 b warrants x 0.7 cent conversion price). Note that DISA has S$12 m of outstanding redeemable convertible bonds. |
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On another matter, DISA has attracted a number of prominent investors, as the table shows:
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Name |
Funds provided in 2016 (S$’m) |
Shares held (m) |
Convertible bonds held (S$’m) |
Total shares after CB conversion (m) |
% of diluted share base |
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Alan Wang (owner of Asdew Acquisitions) |
8.4 |
669.2 |
5.5 |
1,169.2 |
10.3% |
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Eddie Chng (Founder & CEO of DISA) |
- |
975 |
-- |
1,054.0 |
9.3% |
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John Wong (ex-chairman of Goodpack)* |
- |
449.4 |
-- |
449.4 |
4.0% |
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Teo Khiam Chong (investor, ex-analyst) |
2.6 |
280.0 |
-- |
280.0 |
2.5% |
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Tang Wee Loke (ex-UOBKH executive director) |
3.0 |
-- |
3.0 |
272.7 |
2.4% |
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Tsai Yi-Chen (daughter of MediaTek chairman) |
3.0 |
-- |
3.0 |
272.7 |
2.4% |
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Chen Dawei (ex-chairman of Hankore) |
1.4 |
160.0 |
-- |
160.0 |
1.4% |
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Island Asset Management (fund manager) |
1.0 |
120.0 |
-- |
120.0 |
1.1% |
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Lee Teong Sang (owner of Cyrus Consulting) |
0.5 |
- |
0.5 |
45.5 |
0.4% |
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* Long-time shareholder |
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The above discussion does not consider the fundamentals of DISA, which is beyond the scope of this article.
For some idea, here are excerpts from (and a link to) an excellent Maybank Kim Eng 17 April 2017 report written by its analyst, Gregory Yap:
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Investment Pros & Cons |
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Growth proposition: DISA has the unique opportunity to become the retail industry’s solution to prevent shoplifting or employee theft of electronic products. |
Value proposition: At this point, there is no value proposition for DISA. |
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Main risk factors: |
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