How to interpret Corporate Announcements

There are so many corporate announcements in a trading day (not surprising since there are over a thousand counters in Bursa) that it quickly becomes overwhelming. So it is very important to be selective about the ones relevant to you. But you must first be able to interpret them for an informed decision / action in the process of building your investment portfolio.

The following tips by Koon Yew Yin are a good & quick introduction to this topic.

My one golden rule in share selection is that I must be sure the company can make more profit in the current year than last year because if the company announces poor annual profit, the share price will tumble down. Even if it is cheap in terms of NTA and P/E ratio, It will continue to come down until it shows increasing profit.

Corp Announcement and How To Interpret Them by Koon Yew Yin

Thursday, April 23, 2015

How to interpret company announcements on Bursa Malaysia

As you know, there are daily many share recommendations from professional analysts employed by Financial Institutions. You must be careful when you read these articles because their main objective is to generate more trading business for their employers. Even if you are convinced in any particular counter, you must always check it up for its profit growth prospect from its Bursa announcements.

My one golden rule in share selection is that I must be sure the company can make more profit in the current year than last year because if the company announces poor annual profit, the share price will tumble down. Even if it is cheap in terms of NTA and P/E ratio, It will continue to come down until it shows increasing profit.

According to Malaysian Securities Commission’ rules all listed companies have to make announcements of their quarterly results and other business activities that are unusual to their daily business operations.

I would like to share with you my experience on how to interpret and take advantage of the various announcements as follows:

1. Announcement of quarterly result: this is often a catalyst to move share price. If the profit is good, the share price will go up but if the profit is not good the price will likely come down.
2. Announcement of purchasing a large piece of land for development eg MRCB’s recent announcement of signing the S&P agreement to buy the Germen Embassy land in KL for a few hundred million Ringgit. Many investors would think that it is a wonderful deal to be able to own and develop the property right in the heart of KL. But smart investors with some imagination must consider this purchase very risky in view of the oversupply of properties in KL.  Moreover, it will take about 7 years to complete the project from planning approval to construction and sale of all the properties before you can see the financial result. At the mean time, investors are exposed to 7 years of risk.
3. Announcement of company share buyback is tricky to interpret. It can mean that the management wants to buy back its own shares because it is undervalued. But sometimes the management wants to prop up the price to stop the price from falling because of poor quarterly result. Investors must look at the profit growth first before buying the share. You may be tempted to buy because the chart says so. Share prices can be manipulated if the daily trading volume is small.
4. Announcement of right issues with free convertible warrants can be tempting to many investors. You must be careful to examine the true reason for calling the right issues. Do not subscribe blindly. Quite often due to poor management, the company has poor cash flow and the business has too many challenges. As a result, the company needs more cash. Moreover, this kind of announcement will push up the share price, offering you a chance to sell at a better price. You must remember that good profitable companies do not need to get money from calling for right issues.
5. Announcement of bonus issues is usually a good sign that the company is able to accumulate sufficient profit to issue more shares to benefit shareholders. This announcement will push up the share price. Of course the price will be adjusted soon after the bonus issue and the price will go up again if the company continues to show good result.
6. Announcement of share placement of not more than 10% of the total issued shares is a good sign that there is demand by fund managers to own these shares. If they buy them from the open market, it will cost more. This is reassuring to all existing shareholders because the big buyers would have studied the operation of the company in great detail before making such a big financial commitment. They should not think that their interest is being diluted. They must bear in mind that the company will have more cash for expansion which will benefit all the shareholders.
7. Announcement of a new substantial shareholder who bought all his shares from the open market is a good sign. According to S.C. rules, any investor who owns more than 5% of the total issued shares has to declare his interest. He has also to announce if he subsequently buys or sell the shares because his action will affect the decision making process of other investors.
8. Announcement of Company Directors’ buying or selling shares is a good indicator of the true value of the shares. All company directors have to make announcement when they buy or sell their shares. If they continue to buy more shares, it is a healthy sign, provided you know that the company is really doing well and that they are not buying them to simply push up the share price.
9. Announcement by a contractor of securing a large multi million Ringgit contract for the construction of a big project through the open competitive tender system will often encourage investors to rush in to buy the shares in anticipation of the company’s profit growth prospect. Many would think that the contractor with additional work would naturally make more profit. You must remember contracting is a very risky business because of the open tender system. The contractor has to take a lot of risk to submit the cheapest price to win the tender. That is why there are so few really successful listed contracting companies. Very often building contractors are also property developers.
10. Announcement of dividend is a good indicator of the company’s performance. The company that declares increasing dividend is definitely a good company. This shows that it has positive cash flow and can afford to benefit all its shareholders. This sort of company will not need to call for right issues to raise cash for expansion.
11. Announcement of privatization of the listed company is rare but when you see this type of announcement, you can make money if you know how to position yourself. The controlling shareholders offer to buy up all the outstanding shares that they do not already own, usually at a higher price than the current market price. As soon as you see the announcement, you can buy it before the price go up to the offered price. If you consider the offer is unreasonable, you can wait until they offer a better price. You must bear in mind that the better offer may not come and it may be more advantage to accept the cash offer and use the cash proceeds to buy other shares.

Conclusion: There are about 1200 listed companies and every day many of them have to make announcements. It is impossible to read all the announcements. After you have read the above guidelines, you can select the useful announcements to read to save time.

Under the current oversupply of real estate, I will not read announcements by building contractors and property developers because property prices can only come down.

I am not interested to know about huge land transactions and its profit potential.

I will also not read companies that have poor profit growth prospect. That includes plantation counters in view of the depressed palm oil price, even though some of them are selling cheaply in terms of P/E ratio and NTA.

As you know, our Ringgit is the lowest in the last 5 years and readers should look at announcements by companies exporting their products for US$.

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Here’s the full article on my personal blog DO*DID*DONE

PERSONALITIES – Chua Ma Yu

Investors should certainly get to know the Market Movers & Shakers. The more we know about them, the better we can appreciate their investing principles & strategies.

Chua, who earned his stripes when he co-founded what is now known as the RHB financial services group, is the second-largest shareholder in MBSB with a stake of 8.97%.

The 64-year-old former stockbroker and banker is among the rare breed of people who are able to see the trends in the capital markets well ahead of the curve. And it is this uncanny ability that has sometimes earned him the moniker of a “one-man institutional investor”.

The enigmatic investor

THE ordinary facade of the corner shoplot along Jalan Bangkung in Bangsar has often intrigued passers-by. Some have even mistaken it for a beauty salon.

But the address can easily count itself as the bedrock on which huge treasures of the capital markets lie.

From pictures to frames of old stock and bond certificates and the now symbolic Western Union Stock Ticker machines, they are all found in the office of the enigmatic Tan Sri Chua Ma Yu.

The framed-up image of former United States president Ronald Reagan and his Russian counterpart, Mikhail Gorbachev, on the balcony of the New York Stock Exchange in 1992 signaling the end of the cold war and the rise of American capitalism is a stark reminder of Chua and his foresight in the capital markets.

 The 64-year-old former stockbroker and banker is among the rare breed of people who are able to see the trends in the capital markets well ahead of the curve. And it is this uncanny ability that has sometimes earned him the moniker of a “one-man institutional investor”.

The many pictures in his office will convince anyone that this serial investor, who is now a part-time developer, has his first love and passion in the capital markets.

“I have always been intrigued by the capital markets – it is my passion,” he says when StarBizWeek caught up with him just before his lunch break after news emerged that he had increased his interest in Malaysia Building Society Bhd (MBSB).

Chua, who earned his stripes when he co-founded what is now known as the RHB financial services group, is the second-largest shareholder in MBSB with a stake of 8.97%.

The largest shareholder is the Employees Provident Fund (EPF) with 65.4%.

MBSB is a financial institution that primarily caters to micro financing, specifically for personal loans and mortgages ranging from property to cars and equipment.

It recently undertook an RM1.7bil fund-raising exercise, which drew a fair bit of scepticism from some segments of shareholders. However, Chua took the opportunity to increase his stake, which was previously about 6%.

“I’m a contrarian. I get greedy when others become cautious,” says Chua.

MBSB is expected to see its profit being slashed by more than half this year due to impairments of loans. The total amount to be impaired is some RM1.4bil over two years. It is part of a two-year programme for its asset quality to be on par with commercial banks.

A combination of a cash call and reducing earnings has caused a selldown of MBSB since early this year.

Chua feels that the non-conventional financial institution is oversold, which has prompted him to increase his stake.

“The price has come down quite a bit. And the company has fresh capital of RM1.7bil which at a conservative rate of 6% return (return on equity or ROE) would add RM100mil to the bottom line,” he says when asked why he is bullish on MBSB.

Unlike normal commercial banks, MBSB has no access to the cheap funds offered in the inter-bank market, which has impacted its net interest margin.

It generally has been able to generate profits of RM1bil on a total equity of RM4.9bil, which is an ROE of about 20%.

However, in the next two years, it is setting aside RM700mil per annum for impairments, which has brought down its ROE substantially.

The reason for impairments, it says, is to enhance the quality of its loans to be on par with that of commercial banks. Also, with the capital raising completed, MBSB’s leverage ratio would be 12.5%, which is something that Bank Negara would like to see all its financial institutions attain.

At the end of the impairment exercise, MBSB is hoping for Bank Negara to give it a full-fledged banking licence, something that would reduce its cost of funds substantially.

In fact, one of the drivers for Chua to increase his interest in MBSB, apart from its fundaments, is the possibility of the building society becoming a full-fledged commercial bank.

If MBSB has access to the cheaper cost of funds in the inter-bank market, its net interest margins should improve and help boost the ROE. Coupled with its low cost-to-income ratio (CIR) of less than 30%, a low book value and a strong principal shareholder in the EPF, Chua feels that MBSB is worth a second look.

Investing policy

Unlike most investment gurus who focus on picking the correct stock or looking for the next trend to put their money in, Chua’s guiding principle is to minimise mistakes.

“Investing is all about making fewer mistakes. Global capital markets are open 24 hours and opportunities are always open. But one has to make fewer mistakes and look at the long term,” he says.

“Being in the stock market, everyday we have to make a call. The fewer mistakes we make, the higher the probability of survival,” he adds.

Armed with 40 years of experience in the capital markets, Chua divides his time between his investments and property ventures these days.

He also devotes a fair bit of time to his role as chairman of The Community Chest, a charitable entity funded by 14 tycoons that purchased Pan Malaysian Pools from T Ananda Krishnan’s Tanjong Plc in 2012 for RM2bil. So far, The Community Chest has distributed RM135mil to schools throughout the country.

In property ventures, Chua only opts to do prestigious projects.

The first to take off is the OneKL residences that gained fame for having a swimming pool in each of the units. The tagline was “94 apartments, 95 swimming pools” and it was located in the heart of the city centre.

The other project is the St Regis hotel and residences that is quickly gaining ground as an address for the rich and famous of Malaysia.

An accountant by training, Chua has survived four stock market shocks – the 1985 Pan El crisis that caused the exchanges of Malaysia and Singapore to shut down, the 1987 Black Monday crash, the 1998 Asian financial crisis that saw a meltdown of Bursa Malaysia, and the 2008 US financial crisis.

And he has survived each of it.

Chua earned his stripes as an accomplished investor during his years at building up Rashid Hussain Securities from a mere brokerage to a financial services group with an interest in banking, insurance and property under its belt.

It all happened within a short span of nine years too, starting from 1983.

He started his career as an accountant in 1975 with GP Securities (eventually taken over by Public Bank Bhd), where he was employed by Malaysia/Singapore’s first lady broker – Maggie Teh Guat Poh.

Three years later, he traded his accounting books to become a company dealer, where he met a suave investment banker in Rashid Hussain (now Tan Sri Rashid Hussain).

Coming from Singapore, Rashid was then heading the asset-management unit in Bumiputra Merchant Bankers and he was a client of Chua. The duo later became neighbours in the swanky Federal Hill neighbourhood.

By 1983, the duo decided to purchase a stock brokerage and were eyeing a foreign firm.

However, an opportunity fell into their hands when the-then Finance Minister, Tengku Razaleigh Hamzah, wanted to see more bumiputra stock brokers in the industry and was prepared to issue licences.

They managed to get a licence and that was the start of the Chua-Rashid partnership that rocked the financial services industry with their Rashid Hussain Securities.

They started the firm with a capital of RM2mil in 1983. In the first two years, the brokerage was already in the black to the tune of RM6mil.

Rashid Hussain Securities came out stronger after the 1985 Pan-El crisis as the weaker firms fell out. By 1987, they were already raking in some RM11mil in profits, which was way ahead of their competitors.

But the industry operated in a rather inefficient way. It was short of capital, contracts and processes were done manually and stock quotes were written on boards under an open-cry system.

During that time, Chua said he managed to convince the-then Finance Minister Tun Daim Zainuddin that the industry needed to be institutionalised and capitalised.

The birth of RHB

In 1987, Rashid Hussain Securities was part of the listed Rashid Hussain Bhd (RHB) that was beefed up with a capital of RM60mil.

Rashid was the chairman of RHB with a 51% stake and Chua became the chief executive officer with a 24% interest. By then, the office had moved into a building acquired from Peremba located along Jalan Tun Razak.

That building is now the headquarters of the RHB financial services group.

Chua said that he often travelled to Taiwan and came back with valuable ideas on how to improve the brokerage. It led to Rashid Hussain Securities becoming the first broker to have a research arm and a pioneer in computerisation of the backroom operations.

“I conceived the idea of the modern public gallery (now seen at RHB headquarters) and the dealing room of Rashid Hussain Securities, emulating the concept from Taiwan,” says Chua.

However, the brokerage was constrained by capital, which prompted it to acquire a stake in a bank called Development and Commercial Bank (D&C Bank).

Chua recalled that in 1990, he started the negotiations with Indonesia’s Oei Hong Leong that finally ended up with RHB acquiring a 25% stake in the bank for RM225mil. Subsequently, D&C Bank became RHB Bank.

The acquisition propelled the group to become one of the largest financial services entities in the country. By then, RHB had won most of the corporate deals in town. The Chua-Rashid combination blazed the trail and took the industry by storm.

The market capitalisation was well above RM1.5bil at one time.

In 1992, Chua sold his 25% interest in RHB to Tan Sri Wan Azmi Wan Hamzah for RM200mil following differences with Rashid. He formed CMY Capital.

Wan Azmi sold the block to Malaysian Resources Corp Bhd and eventually, it landed in the hands of the EPF.

The group evolved into the RHB Capital group after acquiring two more banks (Kwong Yik Bank and Sime Bank) and merged with Utama Banking Group Bhd of Sarawak (UBG).

Rashid sold his stake to the UBG group, which subsequently disposed the interest to the EPF.

Chua does not regret selling out in 1992, before Malaysia’s great 1993 stock market bull run. All brokerages made a pile from the run.

“I put my money in other places where I made fewer mistakes. It’s the end result that counts,” he says.

PERSONALITIES – Koon Yew Yin

Investors should certainly get to know the Market Movers & Shakers. The more we know about them, the better we can appreciate their investing principles & strategies.

Let’s start with Mr. Koon Yew Yin.

Pix Credit: The Star

“He is the founder of construction giants Mudajaya Sdn Bhd (now IJM Corporation) and Gamuda Sdn Bhd.

Now living in Ipoh, he teaches others how to make money so that they, too, like him, can help the poor with the fortunes earned.”

https://sg.news.yahoo.com/millionaire-investor-leaves-nothing-own-025946385.html

In 2009, Koon Yew Yin offered to donate RM30 million to Universiti Tunku Abdul Rahman (Utar) to help build hostels at its Kampar campus in Perak. The offer was swiftly rejected by the university management, as he recalls it.

He was already 76 years old then, had made his money, and decided that he would use a large chunk of his fortune to help the poor.

When his offer was rejected, Koon invested the RM30 million in the stock market.

Six years later, he returned with an even bigger offer – RM50 million to fund the building of hostels at the Universiti Sains Malaysia (USM) campus in Penang.

The massive donation had raised eyebrows, but that was the point 82-year-old Koon wanted to make.

He is the founder of construction giants Mudajaya Sdn Bhd (now IJM Corporation) and Gamuda Sdn Bhd.

Now living in Ipoh, he teaches others how to make money so that they, too, like him, can help the poor with the fortunes earned.

In an email interview with The Malaysian Insider, the octogenarian said that he was driven to practise philantrophy due to his own tough upbringing.

“As I had 11 siblings, I always needed some things since I was a boy. That is why I want to help poor people. Besides my RM50 million donation to Penang government to build student hostels, I have already given about 300 scholarships to help poor students complete their tertiary education.”

Wealth is for helping others

His father owned a coffin shop in Kuala Lumpur, and Koon graduated with a diploma in civil engineering from the Technical College (now Universiti Teknologi Malaysia) in 1957 under a Public Works Department scholarship.

He then qualified as a chartered civil engineer through self-study in 1962, before embarking on a corporate career that saw him help start two of most influential construction giants in Malaysia to date – IJM and Gamuda.

He founded both companies with two partners in 1967, before Mudajaya merged with IGB and Jurutama to form IJM Corporation in 1980.

In 1975, he sold his controlling stake in Gamuda.

But it was on the stock market, 32 years ago, that Koon began accumulating even more assets and wealth.

“In 1983 I had a serious heart angina. Before my heart surgery in London, I gave all my assets to my wife and children. After my heart operation I started to learn how to make money from the stock market.”

Up until then, he was an executive director in Mudajaya/IJM but gave up his position and invested his time and money in shares.

He started with only RM200,000 to dabble around with and has made money to the tune of millions ever since.

Koon said his trick to mastering the market is to be a “contrarian investor” – one who buys when everyone is selling and who sells when everyone is buying.

And it is a lesson he wants to pass on to others, as he regularly blogs about his investment tips.

“After having read several investment books by famous gurus like Benjamin Graham, Warren Buffet, Peter Lynch, etc and my 32 years of practical experience, I wish to share my knowledge with people who are interested.

“I believe teaching people to make money is like teaching people how to fish instead of giving them some fish.”

His wish is the same no matter who he helps, whether by giving investment tips or monetarily, that they too will help the poor when they have made their money.

This applies to those who have benefitted from his investment tips, the 300-odd students who have received scholarships, and also the Penang state government, which received his RM50 million donation for the USM hostels.

Wanting a better country

Koon is active not only in making money and giving out donations, he also writes regularly about national issues.

“In 1970, when the New Economic Policy was introduced, the GDP per capita of Singapore, Taiwan and South Korea were the same as ours. They became developed nations in spite of the fact that they do not have natural resources like what we have,” said the regular contributor of opinion pieces to The Malaysian Insider.

“We are still not a developed nation because of bad management and corruption of the BN (Barisan Nasional) government. I will continue to write to point out all the bad things of the government until voters can vote the BN government out of Putrajaya.”

Some of this unhappiness with the ruling party was also reflected in his response to the rejection of his RM30 million donation to Utar in 2009.

“The MCA leaders who controlled Utar owned all the land out side the university campus, rejected my offer because they did not want me to spoil their lucrative property development business.”

Koon believes that DAP is managing Penang “very well” and was a reason he donated the RM50 million to the state.

His latest donation to build hostels can accommodate up to 2,200 students. Currently, USM is only able to provide hostel accommodation to its first-year students.

‘My children don’t need my money’

Koon said he does not intend to hold back on his personal fortune either.

“I have written in my will that after I die, all my remaining assets will be donated to the poor to make them happy.”

Koon believes he had done his best for his children and they would not be needing his money.

“I have given my children the best education money can buy and they can find a good living without my money.

“I want to help poor students to complete their tertiary education because I believe with good education they can earn enough to help their own families and other poor people.”

And he also stressed that those who received scholarships from him need not pay him back, but must commit themselves to helping the poor when they have the money.

“I believe some of them will continue to do charity after I die and if they practise the same system or philosophy, there will be more and more charity workers.”

There is great joy in giving, added the millionaire, because its “creates” happiness.

“People must realise that our ultimate aim in life is happiness. They will find great happiness if they can create happiness. If they give away some of their money to help poor people who will be happy and they will also be happy.” – October 3, 2015.

Rights Issue & Warrants

When you begin active trading in the market, you will need to know about Rights Issue & Warrants, sooner or later.

“Companies that need to raise additional capital can do so by issuing additional shares of stock. However, these additional shares will dilute the value of existing shares, which can be a concern for shareholders. Many companies, therefore, choose to issue rights or warrants as an alternative means of generating capital. These instruments give shareholders the preemptive right to purchase additional shares of stock directly from the company, typically at a discounted price.”

Read more: Investing In Stock Rights And Warrants | Investopedia http://www.investopedia.com/articles/investing/062713/investing-stock-rights-and-warrants.asp

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Here’s a good article by GAINVESTOR on this subject detailing TOMYPAK‘s corporate action. There are specific deadlines to be met in such an exercise so you must pay close attention to the revelant dates if you intend to subscribe to your entitlement.

Read the article

Android Apps

With an smartphone apps, you have information & news at your fingertips.

Do not forget about these tools. Keeping up-to-date with the latest trading activities in the stock market has never been easier, even when you are on the move.

These two apps are very useful & I highly recommend them. Try them if you do not have them already. Feel the power, LOL!

Happy Investing.

> KLSE Screener

> StockHut