Investors should mull AHB’s mother shares
Alan Voon 
AHB said the improved performance was due to better demands for its products in the Middle East markets
OFFICE furniture maker AHB Holdings Bhd’s share price rose substantially from 17 sen in the beginning of the year to a high of 43.5 sen in the middle of last month. The company’s managing director Yong Yoke Keong stated in recent media interviews that one of its big customers has given the company an order as large as RM30 mil (to be spread over a two to three-year period).

Nevertheless, AHB’s share price dropped significantly towards end-July and it is now hovering around 27 sen. Its company warrant, AHB-WB, was trading at 17 sen at the time of writing.

An internationally-recognised office furniture-cum-solution provider, AHB is on the verge of making a comeback after a debt-restructuring exercise (the company was hit hard during the 1997/98 Asian financial crisis) and subsequently implemented a rights issue.

In the first quarter (Q1) of its FYE 3/18 which ended June 30, AHB recorded a 43% revenue growth to RM4.73 mil from RM3.3 mil in the previous corresponding quarter. Its net profit for the quarter was RM500,000 or almost 38% higher than the figure achieved in Q1 of FYE3/17.

AHB stated in its quarterly report that the improved performance was due to better demands for its products in the Middle East markets following a positive review of its corporate spending budgets while local demand for office furniture also improved.

The better performance was also attributed to market acceptance of AHB’s new product introduction such as the System T1 and System B2 desking system in the target markets.

AHB indicated its optimism for better financial results in the foreseeable future. The company has increased its research & development resources and plans to introduce new dynamic furniture programmes and products to further improve its financial performance.

AHB-WB is trading at a premium of 32.7% which is not low for a warrant with around two years to go before expiration.

While its implied volatility of 95.9% is only slightly higher than the mother share’s historical volatility of 91.3%, the mother share volatility is now standing at an unsustainable high level.

When the mother share starts to stabilise, the warrant will quickly become expensive. At an effective gearing of 1.39 times, AHB-WB is theoretically expected to outperform the mother share in percentage gain by 39% should the share price rise.

In view of its relatively high valuation and limited gearing ratio, investors who are bullish on AHB’s share price should consider buying directly into the mother share.

The writer is CEO of Warrants Capital Sdn Bhd.

This article first appeared in Focus Malaysia Issue 246.