(MSWG will announce the findings and award winners for the MSWG-ASEAN CORPORATE GOVERNANCE AWARDS 2019 on 19 September 2020. Further details will be made available on MSWG’s website upon the release of results).
18.09.2020
What does share buyback mean to minority shareholders?
Essentially, a company which is flushed with extra cash have a few options at their disposal, of which repurchasing their own shares is one of them.
Other options include re-investing in the business itself, embarking on an acquisition spree or to distribute cash dividends to shareholders.
In a way, share buyback bears resemblance to a dividend policy which is to reward shareholders.
In theory, share buybacks would reduce the number of shares available in the market – and all things being equal – increases the earnings per share (EPS) of the remaining shares.
The higher EPS will probably translate into better valuation and thus benefiting shareholders in terms of rise in share price.
The difference between share buyback and cash dividend is that a stock buyback requires shareholders to sell off their shares to receive the cash in the form of capital gain.
Nevertheless, some economists and investors have argued that companies should be using their excess cash towards re-investing to facilitate growth (i.e. ramping up capacity) instead of acquiring their stock in the open market.
In fact, the scale and frequency of share buybacks have become so significant that even shareholders who presumably benefit from such corporate actions are questioning the motives of such corporate action.
Larry Fink, the chairman and CEO of BlackRock Inc. previously wrote that companies should engage in buybacks only when they are confident that the return on those buybacks will ultimately exceed the cost of capital and the long-term returns of investing in future growth.
Do not forget to cancel the treasury shares
Espousing its thoughts on Shareholder Value Creation Through Corporate Governance, Dunross & Co, a long-term value investment firm said if and when a company decides to buy back shares, it is of utmost importance that the acquired shares are cancelled.
“A buy-back programme without cancellation of treasury shares will be interpreted as if the company will sell the shares back into the market eventually, thereby creating an overhang that will negatively impact the cost of equity.”
Technically, only when treasury shares are cancelled is there a reduction in the number of shares and hence an increase in the EPS. If PLCs sell back the treasury shares in the market, there is no reduction in the number of shares in float and increase in the EPS.
When companies buy back their own shares, cash on the company’s balance sheets will be reduced. This will increase the return on equity (ROE) of companies as well.
However, shareholders must take note that the increase in ratios is not because of the improved profitability but due to a decrease in outstanding shares.
In addition, for companies which are flushed with cash, the prospect of bumping up EPS can be tempting, especially in an environment of low yield on corporate cash investments.
Additionally, companies that pursue share buybacks often believe that their stock is undervalued and is a good buy at the current market price.
Elsewhere, share buyback will create a level of support for the stock, especially during a recessionary period or during a market correction (as depicted by the recent plunge of glove stock prices).
Massive share buyback by glovemakers
Notably, glove manufacturers Top Glove Corporation Berhad and Supermax Corporation Berhad have in recent times splurged huge amount of money on share buyback following the plunge of glove stock prices after their meteoric rise over the past five months.
Both Top Gloves and Supermax had earlier announced a bonus issue of two-for-one and one-for-one on 24 and 27 July, respectively. Shares from the bonus issue of Top Glove and Supermax were traded on an ex-bonus basis on 3 and 4 September respectively.
According to Bursa Malaysia filings, Top Gloves, the world’s largest rubber glove producer, spent approximate RM210 million for its share buyback scheme on 9, 10 and 11 September.
The amount spent is equivalent to 17.35% of the company’s cash pile of RM1.21billion as of 31 August. It also owned investment securities worth of RM1.67 billion as of end-August.
Following the recent share buyback, Top Glove’s cumulative net outstanding treasury shares have risen to 31.73 million shares compared to 1.98 million before the massive repurchase of shares.
Meanwhile, Supermax bought back 5.48 million shares in the open market on 10 September for RM36 million compared with its cash pile of RM1.18 billion as of 30 June.
Prior to this, Supermax had already spent about RM58.08 million between 15 and 30 April to buy back 28.7 million of shares. The glove maker has accumulative treasury shares of 143.26 million which is equivalent to a 5.26% stake in the company.
Statistics showed that share buybacks were increasingly popular among Malaysian PLCs. Value of share repurchased by local PLCs totalled RM1.56 billion in 2018 or about six times the RM264 million expended in 2017 (Source: The Edge Malaysia, issue 11-17 March 2019).
The ramp-up came amid the sharp decline in the local bourse following uncertainties brought about by a historic change in government as well as trade tensions between the US and China.
The number of companies that utilised such strategy during the period by buying back more than 2% of their outstanding shares also more than doubled to 23 compared with only 10 in the preceding year.
If a company buys back its shares for the sole purpose of stabilising its share price regardless of the intrinsic value, such action may create a short-term bump in share price, but the positive effect will soon fizzle out if there is no growth in actual value of the company.
As such, minority shareholders must decide whether they agree with their company undertaking a share buyback exercise. If they disagree with the board’s buyback decision, the simplest way for them to show their displeasure is by voting against the resolution mandating share buybacks.
Devanesan Evanson
Chief Executive Officer
MSWG AGM/EGM Weekly Watch 21 September – 25 September 2020
For this week, the following are the AGMs/EGMs of companies which are in the Minority Shareholders Watch Group’s (MSWG) watch list.
The details of the questions to the companies can be obtained via MSWG’s website at www.mswg.org.my.
|
Date & Time |
Company |
Broadcast Venue/Venue |
|
21.09.20 (Mon) |
Superlon Holdings Bhd |
Danau 3-5, Kota Permai Golf & Country Club, Kota Kemuning, Shah Alam |
|
21.09.20 (Mon) |
LFE Corporation bhd |
4th Floor, Campbell Complex, Jalan Dang Wangi, KL |
|
21.09.20 (Mon) |
Emico Holdings Bhd |
The Conference Room of Emico Holdings Bhd, Lebuhraya Kg. Jawa, Bayan Lepas |
|
22.09.20 (Tue) |
IJM Corporation Bhd |
Broadcast Venue at the Multipurpose Hall, Wisma IJM, Jalan Yong Shook Lin, PJ |
|
22.09.20 (Tue) |
RCE Capital Bhd |
Main Hall Level 1, PJ Tower, Jalan Persiaran Barat, PJ |
|
22.09.20 (Tue) |
Brem Holdings Bhd |
Crystal Crown Hotel Harbour View Port Klang, Persiaran Raja Muda Musa |
|
23.09.20 (Wed) |
Land & General Bhd |
Broadcast Venue at Meeting Room TR12-R02, Menara Symphony, Seksyen 13, PJ |
|
23.09.20 (Wed) |
Amcorp Properties Bhd (fka AMDB Bhd) |
Main Hall Level 1, PJ Tower, Jalan Persiaran Barat, PJ |
|
23.09.20 (Wed) |
Wang-Zheng Bhd |
No. 1, Jalan Utarid U5/19, Section U5, Shah Alam |
|
23.09.20 (Wed) |
PNE PCB Bhd |
Le Grandeur Palm Resort Johor, Jalan Persiaran Golf, Senai, Johor |
|
23.09.20 (Wed) |
Atlan Holdings Bhd |
Broadcast Venue, Boardroom, 18th Floor, Menara Atlan, Jalan Ampang, KL |
|
24.09.20 (Thur) |
Lotte Chemical Titan Holdings Bhd |
Broadcast Venue at Tricor Business Centre, Manuka 2 & 3, Vertical Business Centre |
|
24.09.20 (Thur) |
KUB Malaysia Bhd (new) |
Function Room, KUB Malaysia, Capital, Oasis Square, Ara Damansara, PJ |
|
24.09.20 (Thur) |
Eksons Corporation Bhd |
LA Hotel, MPT No. 299, Jalan St. Patrick, Tawau Sabah |
|
25.09.20 (Fri) |
Kanger International Bhd |
The Royal Selangor Golf Club, Jalan Kelab Golf, Off Jalan Tun Razak, KL |
|
25.09.20 (Fri) |
NTPM Holdings Bhd |
Bukit jawi Golf Resort, Sungai Bakap, Seberang Prai, Penang |
|
25.09.20 (Fri) |
SKP Resources Bhd |
Melati Room, Bangi Resort Hotel, Bandar Baru Bangi |
|
25.09.20 (Fri) |
Kossan Rubber Industries Bhd |
Kossan R&D Centre, PT 7836, Kaw. Perindustrian Meru Selatan, Klang |
|
25.09.20 (Fri) |
Southern Acids (M) Bhd |
Setia City Convention Centre, Jalan Setia Dagang, Shah Alam |
|
One of the points of interest to be raised: |
|
|
Company |
Points/Issues to Be Raised |
|
Superlon Holdings Bhd |
Some of the reasons why Superlon’s GP Margin retreated to 27% (FYE 2019: 29%) are as follows: -
(Page 9 of the Annual Report 2020) How will the Board plan to address these events? |
|
LFE Corporation bhd |
As of 22 April 2020, LFE has successfully secured a new project and 4 sub-projects. These new projects have contributed approximately RM53.6 million of order book for the Company.
|
|
Emico Holdings Bhd |
The Company posted profit after tax of RM244k for FYE 2020 compared to RM 1.47 million in FYE 2019 which translates to a decline of more than 500%. As one of the biggest plastic trophy manufacturers in the world, the company reported that 50% of its FYE 2020 revenue or RM26.5 million was derived from the trophy business. (Page 13 of AR 2020).
|
|
IJM Corporation Bhd |
IJM has recorded a revenue of RM7,075,072 in FY2020. It was the highest revenue since FY2016. However, the Group has recorded a profit before taxation of RM517,765, which was the lowest since the FY2016 (Page 38 of the Annual Report 2020). How does the Board plan to address the bottom-line result situation, moving forward? |
|
RCE Capital Bhd |
RCE saw a sharp increase of 59% in allowance for impairment loss on receivables in Q1FY21 to RM7.16 million, as compared to RM4.5 million in Q1FY20, after taking into account the unfavourable impact arising from the further contraction of the forecasted real GDP.
|
|
Brem Holdings Bhd |
There is a net impairment loss of receivables of RM8,252,597 recorded in FY2020 (FY2019: RM330,957) (Page 52 of the Annual Report 2020).
|
|
Land & General Bhd |
Included in the sundry receivables is an advance payment of RM15 million made to a contractor in current year, which will be progressively settled over the duration of the contract. (page 122 of Annual Report)
|
|
Amcorp Properties Bhd (fka AMDB Bhd) |
The Group recorded a profit after tax of RM4.5 million after taken into account the disposal of two pieces of contiguous land in Sepang that contributed RM16.3 million to the Group’s profit before tax. (page 11 of Annual Report)
|
|
Wang-Zheng Bhd |
The total fee for the internal audit function of the Company during FYE 2019 was RM 21,000. (Page 63 of AR 2019)
|
|
PNE PCB Bhd |
The total fee incurred for the internal audit function of the Group during the financial year ended 31 March 2020 was RM18,575.00. (Page 27 of AR) Given that the fee is rather small (approximately RM1,500 per month), how does the audit committee assure itself that there would be adequate coverage and an effective audit function? |
|
Atlan Holdings Bhd |
Trade receivables that are past due for more than 120 days but not impaired has increased 91.25% to RM17.71 million in FY20 from RM9.26 million as at the end of FY19 (page 185, Note 26 Trade and other receivables, AR2020). What are the measures taken to expedite the collection of these overdue receivables? How much of these receivables have been recovered to-date? |
|
KUB Malaysia Bhd (new) |
Total remuneration paid to former president and group managing director Datuk Abdul Rahim Mohd Zin increased approximately 25% year-on-year to RM1.62 million from RM1.3 million in FY18. The salary component in the total remuneration increase by 30% to RM1.13 million from RM870,000 in FY18 (page 91, Note 11 Directors’ Remuneration, AR2019). Given that revenue has declined 23% and the Company is making losses from continuing operations in FY19 (refer to Q1), what is the rationale for the significant increase in remuneration for Datuk Abdul Rahim? |
|
Eksons Corporation Bhd |
The Timber Division’s inventories were written down by RM11.7 million in FYE 2020 (FY 19: RM4.6 million) due to the weak demand and lethargic economic conditions. (Page 13 of AR 2020)
|
|
SKP Resources Bhd |
Revenue from 1 major customer amounted to RM1,394,447,000 (2019: RM1,225,928,000), arising from sales of plastic products segment. (Page 122 of AR). The revenue contribution from the major customer constituted 76.3% and 74.1% of the respective Group revenue in FY2020 and FY2019.
|
|
Southern Acids (M) Bhd |
The Oleochemical segment had incurred losses in the last two financial years (FY20: - RM3.2 million; FY19: - RM2.4 million). The loss before tax of RM3.2 million in FY20 was due to a decline in average selling price (ASP) of fatty acids and glycerine, notwithstanding a higher sales volume (page 12 of Annual Report 2020).
To what extent does petrochemical products pose a threat as substitutes to SAB’s oleochemical products? What is the percentage of SAB’s oleochemicals product portfolio that can be substituted with petrochemical products?
|
MSWG TEAM
Devanesan Evanson, Chief Executive Officer, ([email protected])
Linnert Hoo, Head, Research & Development, ([email protected])
Norhisam Sidek, Manager, Corporate Monitoring, ([email protected])
Lee Chee Meng, Manager, Corporate Monitoring, ([email protected])
Elaine Choo Yi Ling, Manager, Corporate Monitoring, ([email protected])
Lim Cian Yai, Manager, Corporate Monitoring, ([email protected])
Ranjit Singh, Manager, Corporate Monitoring, ([email protected])
Nor Khalidah Mohd Khalil, Executive, Corporate Monitoring, ([email protected])
DISCLOSURE OF INTERESTS
•With regard to the companies mentioned, MSWG holds a minimum number of shares in all these companies covered in this newsletter.
DISCLAIMER
This newsletter and the contents thereof and all rights relating thereto including all copyright is owned by the Badan Pengawas Pemegang Saham Minoriti Berhad, also known as the Minority Shareholders Watch Group (MSWG).
The contents and the opinions expressed in this newsletter are based on information in the public domain and are intended to provide the user with general information and for reference only. Best efforts have been made to ensure that the information contained in this newsletter is accurate and current as at the date of publication. However, MSWG makes no express or implied warranty as to the accuracy or completeness of any such information and opinions contained in this newsletter. No information in this newsletter is intended to be or should be construed as a recommendation to buy or sell or an invitation to subscribe for any, of the subject securities, related investments or other financial instruments thereof.
MSWG must be acknowledged for any part of this newsletter which is reproduced.
MSWG bears no responsibility or liability for any reliance on any information or comments appearing herein or for reproduction of the same by third parties. All readers or investors are advised to obtain legal or other professional advice before taking any action based on this newsletter.
