GFB-WB – High Gearing Vs High Premium

Written by Editor

The shares and warrants of Golden Frontier Berhad attracted some interest recently as investors find value in this low profile company. The underlying share has been rising steadily over the past few weeks despite the general lackluster market. At the close of last Friday, Golden Frontier was trading at RM1.27 while its warrant, GFB-WB closed at 14 sen.


Golden Frontier’s operation is divided into two divisions: packaging and property development. However, its property division is not very active at the moment after it has completed its previous project. Packaging is the main business and principal profit contributor to the group. Golden Frontier’s corrugated cartons operations are conducted both in Malaysia and Vietnam. With the rapid expansion of the Vietnam economy, the packaging operation in Vietnam has surpassed that of Malaysia both in terms of revenue and profitability.



For the financial year ended September 2009, Golden Frontier achieved a net profit of RM11.65 million on the back of revenue of RM146.21 million. This level of profit is about 8% higher than the corresponding period a year ago despite the economic crisis the world went through the past year. In the notes accompanying the financial statement, Golden Frontier attributed the substantial better performance to improved margin, higher productivity, and more efficient management of resources including a better cashflow management that have successfully reduced the Group bank borrowings hence significantly reduced Golden Frontier’s financial costs during the year. Earnings per share of Golden Frontier for 2009 was 20.8 sen and its net asset per share reached RM1.90.

In terms of valuation, Golden Frontier is now trading at historical price earnings ratio of about 6 times despite having exposure to the fast expanding Vietnam economy. This is at a substantial discount to the average market price earnings ratio. The company has been buying back its share aggressively over the last couple of years in view of under appreciation of the company potential by the investment community.

GFB-WB will be expiring in the middle of November this year. It now trades at a relatively high premium of 24% in view of the warrant’s relatively short expiry. Nevertheless, GFB-WB trades at a very high gearing of over 9 times. If the underlying share staged a strong rally, the premium will disappear very fast and the warrant can reap substantial gain very quickly.




In terms of volatility, GFB-WB implied volatility is above 51%, indicating that the market is expecting the expansion of volatility in the underlying share. When volatility expands, the valuation of warrants would then increase. With an effective gearing of 3.82 times, GFB-WB provides traders a theoretical out-performance margin of 282% over that of the mother share should GFB makes an upwards movement. Trader who are bullish on GFB may consider the warrant if their risk appetite is strong. Conservative investors would be better off buying the mother share direct.




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 Alan Voon

Warrants Specialist