Now that I think about it, I just realized they did a stock split last year in December. I think that may be the reason for the change in conversion price.
I actually think your initial reasoning was correct. I believe the conversion price is for the underlying common stock, not for the ADS. The stock split was not really a stock split but an ADS ratio change, from 1:2 to 2:1. That is why the conversion price didn't change after the stock split.
But in the adjustment formula they use the ADS price, which was so low that now the conversion price is being adjusted by an enormous amount.
As per the 2023 20-F the Ping An convertible Promissory Notes were convertible into 76,679,748 ORDINARY (emphasis mine) shares as per March, 2024. As per the June 6-K the new number is 421m Shares (with a capital S, explicitly defined as ORDINARY shares in the 6-K, not ADSs).
So indeed the conversion price has gone down by a factor ~6 over the past few weeks due to the ADS trading so low that the formula they use makes no sense.
The conversion price did not change between 2022 and 2023 20-F though. Amount of shares stayed roughly the same. So I think it checks out? It is a bit shifty they did not do the adjustment after the dividend though.
Either way, there isn't much room for dilution anyway, as it would trigger a mandatory takeover, so I don't think it matters much. If Ping An takes the dividend in shares (which seems very likely as they have to get over 50%), insider ownership will be very close to 75%, so most of that debt will very likely be bought back. Unless Ping An is actually planning to buyout Lufax. In which case I expect a $4-5/share minimum offer (40-50% BV) with 1.1bn shares outstanding. So win/win?
I don't know where you are looking but the conversion price did change between 20-F's. Perhaps you are looking at the initial conversion price?
2022 AR: The Ping An Convertible Promissory Notes can be converted into an aggregate of 72,631,970 ordinary shares of our company as of February 28, 2023.
2023 AR: The Ping An Convertible Promissory Notes can be converted into an aggregate of 76,679,748 ordinary shares of our company as of March 31, 2024
With $976.9m outstanding the Mar '24 aggregate works out to $12.74, which is the number that is also given in the 6-K from a few days ago. In Feb '23 the conversion price was $13.45.
The convertible comes due 2026, so there is a possibility it will be bought back with cash on hand.
Either way it might still work out well, just think there are more attractive stocks out there now with dilution risk. I don't think this will fetch a high earnings multiple, given that competitors don't really trade above 5-6x earnings.
*Chinese power utility coal tender award assessment*
For the week ended Jun 21, 2024, the CCI index for 3,800 Kcal coal tender awarded by Chinese power utilities was 523 yuan/t,DDP with VAT, up 5.0 yuan/t WoW; the index for 4,700 Kcal coal at 685 yuan/t, flat WoW; the index for 5,500 Kcal coal at 845 yuan/t, down 5.0 yuan/t WoW.
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A stock which many believe is 90% under valued is the Canadian coal miner SOUTH GOBI RESOURCES, (reserves over 140 Million ton), with actively producing over 1 million tons of coal per quarter from their Mongolia Mine 45 km from Chinese Border coal import station CEKE Port! The company had huge problems and still large debts and an already provided for, tax penalty!
However starting to rise like a Phoenix!
SGQ.v or 1878.HK share price of this coal miner is on mood basis only presently at ridiculous low prices! Patience to next earnings report July 20th is needed! This level is a simple buy and accumulate!
I made as an amateur some very conservative estimates:
Mongolia exports April 2024 coal to China 6.7 Mt!
Via CEKE Port -30% = 2Mt
Of that SGQ 20% =400Kt
Selling average at - CNY650 = US$90 per ton!
Tripple net profit margin US$40 per ton = 400,000 ton x US$40 = US$16 Million profit for April 2024. multiply x 11.5 month, (2 week holidays) = US$180 Million for 2024 = Can$240 Million divide by 295 Million shares = Can$0.80 per share! If traded at 3 x earnings, share price should be Can$2.40 per share or HK$13 per share!
I noticed last few weeks a lot of accumulation going on. Block purchases 100k to 1 Mill. when price low. Then big price drop with sales of 5-20,000 shares.
Interesting! JD.com who bought 2 years ago through their subsidiary JD Zhixing Fund (JDZF) about 64 Million shares of SGQ shares and a US$250 Mill. Convertible debenture added over last several months a further 24 Million shares of SGQ, holding now about 88 Million shares!
Can you explain how you achieved a 40% return on this stock? Current share price is $2.34, which is just about the lowest price in the past year. Did you buy in February and sell in May, before the stock price was cut in half? Thanks!
As at the Latest Practicable Date, based on the information available to the Company, the Controlling Shareholders altogether controlled
474,905,000 Shares, representing approximately 41.40% of the total issued Shares; and the Substantial Shareholder was interested in 308,198,174
Shares, representing approximately 26.87% of the total issued Shares. Assuming only the Controlling Shareholders or only the Substantial Shareholder
(as the case may be) elect for all scrip dividend, while all other holders of Shares and holders of ADS elect for all cash dividend, the Controlling
Shareholders or the Substantial Shareholder might trigger a mandatory general offer in accordance with Rule 26 of the Takeovers Code.
As they said: "the case may be", only the 26.9% shareholder is going to elect for scrip dividend. So, it would be 165M new shares, totalling 738M shares. It would be trading now at 0.15x p/b fully dilluted.
Now that I think about it, I just realized they did a stock split last year in December. I think that may be the reason for the change in conversion price.
Strange this is not mentioned in the 6-k though.
I actually think your initial reasoning was correct. I believe the conversion price is for the underlying common stock, not for the ADS. The stock split was not really a stock split but an ADS ratio change, from 1:2 to 2:1. That is why the conversion price didn't change after the stock split.
But in the adjustment formula they use the ADS price, which was so low that now the conversion price is being adjusted by an enormous amount.
As per the 2023 20-F the Ping An convertible Promissory Notes were convertible into 76,679,748 ORDINARY (emphasis mine) shares as per March, 2024. As per the June 6-K the new number is 421m Shares (with a capital S, explicitly defined as ORDINARY shares in the 6-K, not ADSs).
So indeed the conversion price has gone down by a factor ~6 over the past few weeks due to the ADS trading so low that the formula they use makes no sense.
The conversion price did not change between 2022 and 2023 20-F though. Amount of shares stayed roughly the same. So I think it checks out? It is a bit shifty they did not do the adjustment after the dividend though.
Either way, there isn't much room for dilution anyway, as it would trigger a mandatory takeover, so I don't think it matters much. If Ping An takes the dividend in shares (which seems very likely as they have to get over 50%), insider ownership will be very close to 75%, so most of that debt will very likely be bought back. Unless Ping An is actually planning to buyout Lufax. In which case I expect a $4-5/share minimum offer (40-50% BV) with 1.1bn shares outstanding. So win/win?
I don't know where you are looking but the conversion price did change between 20-F's. Perhaps you are looking at the initial conversion price?
2022 AR: The Ping An Convertible Promissory Notes can be converted into an aggregate of 72,631,970 ordinary shares of our company as of February 28, 2023.
2023 AR: The Ping An Convertible Promissory Notes can be converted into an aggregate of 76,679,748 ordinary shares of our company as of March 31, 2024
With $976.9m outstanding the Mar '24 aggregate works out to $12.74, which is the number that is also given in the 6-K from a few days ago. In Feb '23 the conversion price was $13.45.
Yeah sorry I phrased it poorly, I meant it was not changed to reflect the stock split in the 2023 20-F.
https://southgobi.com/html/index.php
I understand you. But, why did they say that (as the case may be)?
The convertible comes due 2026, so there is a possibility it will be bought back with cash on hand.
Either way it might still work out well, just think there are more attractive stocks out there now with dilution risk. I don't think this will fetch a high earnings multiple, given that competitors don't really trade above 5-6x earnings.
Coal prices on the rise again!
*Chinese power utility coal tender award assessment*
For the week ended Jun 21, 2024, the CCI index for 3,800 Kcal coal tender awarded by Chinese power utilities was 523 yuan/t,DDP with VAT, up 5.0 yuan/t WoW; the index for 4,700 Kcal coal at 685 yuan/t, flat WoW; the index for 5,500 Kcal coal at 845 yuan/t, down 5.0 yuan/t WoW.
🔭 This is only part of the updates in our *WhatsApp Flash* broadcast. Sign up for a free trial of 25+ updates daily. https://sxcoal.com/wBHpxY
100 Chinese Yuan = US$ 13.70
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A stock which many believe is 90% under valued is the Canadian coal miner SOUTH GOBI RESOURCES, (reserves over 140 Million ton), with actively producing over 1 million tons of coal per quarter from their Mongolia Mine 45 km from Chinese Border coal import station CEKE Port! The company had huge problems and still large debts and an already provided for, tax penalty!
However starting to rise like a Phoenix!
SGQ.v or 1878.HK share price of this coal miner is on mood basis only presently at ridiculous low prices! Patience to next earnings report July 20th is needed! This level is a simple buy and accumulate!
I made as an amateur some very conservative estimates:
Mongolia exports April 2024 coal to China 6.7 Mt!
Via CEKE Port -30% = 2Mt
Of that SGQ 20% =400Kt
Selling average at - CNY650 = US$90 per ton!
Tripple net profit margin US$40 per ton = 400,000 ton x US$40 = US$16 Million profit for April 2024. multiply x 11.5 month, (2 week holidays) = US$180 Million for 2024 = Can$240 Million divide by 295 Million shares = Can$0.80 per share! If traded at 3 x earnings, share price should be Can$2.40 per share or HK$13 per share!
I noticed last few weeks a lot of accumulation going on. Block purchases 100k to 1 Mill. when price low. Then big price drop with sales of 5-20,000 shares.
Interesting! JD.com who bought 2 years ago through their subsidiary JD Zhixing Fund (JDZF) about 64 Million shares of SGQ shares and a US$250 Mill. Convertible debenture added over last several months a further 24 Million shares of SGQ, holding now about 88 Million shares!
Patience is NEEDED!
Do your own research and DD!
Let's talk on WhatsApp
Perhaps next month’s!
Any questions or topic in mind?
As far as SGQ 1878.HK, we have now the calm before the storm latest Aug.15. Deadline for Q2 earnings report!
My estimate minimum US$35Million on minimum 1.000.000 ton coal production for the quarter, profit per ton $35 to $50.
295 Million shares outstanding (90 Million shares held by JD.com subsidiary fund!
SGQ today market cap C$182 Million, 🤣 plus they have 100Mill ton surface reserves 45 km from CHINA-CEKE port!
I bought 1 Mill plus shares. All it needs is patience! Have a good weekend!
You recently wrote you like DOUYU and HUYA. Have you looked at BILI? Share price has run up nicely recently. Thoughts on how Bili compares?
I only own DOYU. I have no opinion on content/streaming business. I purely own DOYU for the net cash position. No opinion on BILI either.
Can you explain how you achieved a 40% return on this stock? Current share price is $2.34, which is just about the lowest price in the past year. Did you buy in February and sell in May, before the stock price was cut in half? Thanks!
Dividends ?
Ah, it must be the $2.37/share dividend payable in August that I hadn't accounted for.
They said on the report the following:
As at the Latest Practicable Date, based on the information available to the Company, the Controlling Shareholders altogether controlled
474,905,000 Shares, representing approximately 41.40% of the total issued Shares; and the Substantial Shareholder was interested in 308,198,174
Shares, representing approximately 26.87% of the total issued Shares. Assuming only the Controlling Shareholders or only the Substantial Shareholder
(as the case may be) elect for all scrip dividend, while all other holders of Shares and holders of ADS elect for all cash dividend, the Controlling
Shareholders or the Substantial Shareholder might trigger a mandatory general offer in accordance with Rule 26 of the Takeovers Code.
As they said: "the case may be", only the 26.9% shareholder is going to elect for scrip dividend. So, it would be 165M new shares, totalling 738M shares. It would be trading now at 0.15x p/b fully dilluted.
Yes but with convertible it would be 1.1 billion shares.
Why else would they adjust the conversion price downwards if they weren't planning to convert?