Pretty, Chic and Rich

CIMB PM Play the dual-listing theme wisely
China Gaoxian’s KDR debut opened lower this morning, with its KDR price falling to a low of 5,360 KRW (equivalent to S$0.307 per share) before recovering to 5,605 KRW as at writing. As a result, its SGX price fell from S$0.44 (yesterday’s closing price) to a low of S$0.36 (-18%) before finishing at S$0.365 at the break; stock’s KDR value effectively trades at a discount to its SGX value currently.
Our take on dual listing: Our review suggested that stocks dual-listed on Hong Kong generally trade at only slight premium (except for Novo Group; but unfortunately trading is inactive) to SGX prices. Thus, arbitraging may not be profitable for retail investors when transaction costs are factored in. In Taiwan however, TDRs generally trade at a premium to SGX prices. However, we think that the premium is sustained because (i) the Taiwan market trades at a premium to Singapore, and (ii) arbitrage opportunities for TDR are non-existent as they are not fungible. Though so, premium TDR valuations may still have the effect of lifting the companies’ SGX prices without eliminating the valuation gap.
For the investors: Make your investments based on company’s fundamentals; do not chase dual listing themes blindly. Current investors in China Gaoxian could take advantage of this opportunity to buy its KDR and sell SGX shares (in equivalent amount) to make the spread (+12% before transaction costs).
Trader’s perspective: China Gaoxian’s share price fell 5.6% (to close at S$0.42) on the next trading day after it announced KDR pricing (S$0.405 per share) at a discount to its last transacted price on the SGX (S$0.445 per share); as at noon, price has fallen 18% since announcing KDR price. Prior to this sell-down, its price rallied +134% from S$0.19 (last closing price before KDR plans was revealed) to S$0.445 (just before KDR pricing announced). Thus, we feel that traders playing the dual listing theme will be better off taking profits on announcement of dual listing offer price.
What to buy now? Companies (with good fundamentals) set for Korean listings but has NOT announced KDR pricings. In this space, we like Combine Will (Buy, TP S$0.52) and UMS Holdings (Pending results review: Buy, TP S$0.835).