SPSETIA vs SPSETIA-WB

There's a warrant for SPSETIA which is convertable to its mother share anytime, that's SPSETIA-WB.
Some background information as of 335pm:

Market Price: RM1.48
Mother Price: RM6.11
Conversion Price: RM4.48

Looking at the market price, there's an arbitrage opportunity by using this strategy:
BUY WB @ RM1.48, pay RM4.48 to convert to mother share... Cash Out = RM5.96
Then SELL it at market @ RM6.11, Cash In = RM6.11
Profit = RM6.11-RM5.96 = RM0.15

BUT more detailed analysis shows some explanations on why the market is not executing this strategy:

1. Time Lag:
There's time to execute this strategy, to complete the forms, submit it, then wait, then queue to sell the mother share at open market. Probably takes 1 week to 1 month to execute this strategy. If the mother share falls, this strategy does not work anymore...

2. Share dilution
SPSETIA has 1020.35m shares outstanding and WB 160.25m shares. Assuming full conversion of the warrant, EPS will be diluted. Again let's assume market is efficient enough to price SPSETIA lower due to the dilution, meaning the new value (if all warrant convert) = RM6.11*1020.35/(1020.35+160.25) = 6234.39/1180.6 = RM5.28. Compared with cash out put of RM5.96, there no more arbitrage opportunity...

Conclusion:
At the 1st hindsight, looks like there is arbitrage opportunity. But with closer look, the market is smart enough...

JP Morgan maintain BUY Call on SP SETIA with TP of RM6.80

SP Setia has proposed to purchase a 268-acre piece of freehold land within the Cyberjaya Flagship Zone for M$420MM or M$36psf, which we believe is a fair price for the location. According to the company, the land is estimated to have a GDV of M$3B, with commencement of development expected to start in FY12,
spanning over six years. Management plans to replicate its success with its eco-themed development, Setia Eco Park in this new area in Cyberjaya.

Other developers like Mah Sing and UEM Land already have a presence in Cyberjaya only since the past 1-2 years, and response to their launches here have been encouraging overall.

We maintain an OW on SP Setia, but our preferred property play or top pick in the sector is IJM Land which trades at a steeper 30% discount to our RNAV versus SP Setia's 12% discount to our estimated RNAV of M$6.80/share. IJM Land is also backed by strong fundamentals and earnings growth. Our preferred entry level for SP Setia remains at below M$6.00.

Source: J.P. Morgan Research

3 Signs Of Bullish Sentiment After Chinese New Year

Sign 1: The poll at The Edge Malaysia website shows positive result among readers... See the pics below, I have voted at around 1215pm 3-Feb-2011...

Sign 2: Many of my Chinese friends and relatives received Chinese New Year SMS greetings from Prime Minister...Well this is quite straightforward as another strong sign of possible general elections this year, which will then benefit stock market...

Sign 3: Strong market performance despite only half day trading on Chinese New Year Eve. FBM KLCI surged 11.88 points (Well, 1188 is a good number, isn't it?) with 674 gainers and 137 losers. Volume was strong too with 1.53 billion shares valued at RM1.70 billion changed hand.

What's the stock I am looking at? CBIP, FPI and SPSETIA. Will try to write on these companies soon...