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$.

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.