Market volatility to spur more share buybacks

20 May 2018 / 23:37 H.

    PETALING JAYA: More companies and substantial shareholders are expected to launch share buybacks, at a time when share prices have tumbled as the equity market goes through a period of volatility amid changes in the government and policies following the surprise win by Pakatan Harapan in the 14th general election.
    Rakuten Trade head of research Kenny Yee said it is good to buy back shares if companies feel that their share price is undervalued and if it has some surplus cash.
    "It's possible that more companies will do more share buybacks. Most of it are stocks that have fallen (share price) a fair bit. Some of the companies have that (practice) in place that if the share price drops, they would be able to buy back some of the shares," he told SunBiz.
    George Kent (M) Bhd (GKM), for example, is speeding up its share buyback plan after its share price took a beating last week. GKM's share price tumbled 60% last week compared with its last close before the election. It has proposed to obtain shareholders' approval for the company to purchase its own shares of up to 10% of its share capital, at an EGM on June 4, instead of waiting for its AGM.
    "The proposed share buyback is to permit a stabilising factor on the supply and demand as well as the price of the shares of GKM on Bursa Securities. Consequently, the fundamental value of the company may be preserved, which may in turn have a favourable impact on the share price of the company. It is to be carried out when the share price is transacted at levels which do not reflect the potential earnings capabilities and/or underlying asset value of the group," GKM said.
    The company said the share buyback exercise will also enable it to utilise its surplus financial resources to purchase its shares. In addition, the purchased shares may be held as treasury shares and resold on the stock market of Bursa Securities with the intention of realising a potential gain without affecting the total issued share capital of the company.
    Should any treasury shares be distributed as share dividends, this would serve to reward the shareholders of the company, GKM added.
    Meanwhile, Yee does not see share buybacks as a "trend" but noted that as and when the situation arises, corporates would buy back shares during times of opportunity.
    Last week, companies that undertook a share buyback include My E.G. Services Bhd (MyEG), IJM Corp Bhd, Kenanga Investment Bank Bhd, Tropicana Corp Bhd, Gabungan AQRS Bhd, Yinson Holdings Bhd.
    Many substantial shareholders also upped their stake (direct and indirect interest), such as the likes of IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng, MyEG executive chairman Datuk Dr Norraesah Mohamad and group managing director Wong Thean Soon, Ahmad Zaki Resources Bhd executive vice-chairman Tan Sri Wan Zaki Wan Muda, Inari Amertron Bhd director Datuk Seri Thong Kok Khee, and Glomac Bhd group managing director and CEO Datuk Seri Fateh Iskandar Mohamed Mansor to name a few.

    "They're confident of their company, that's why they're buying shares under their names," said Yee.
    Another analyst said share buybacks can help to stabilise market sentiment, but market view may be different and may still sell down shares.
    "It (share buyback) is a trend now because everything is deemed to be quite cheap and because the price has tumbled so much from the pre-election prices. If the share price didn't tumble so much, they may not be buying it."
    However, the analyst clarified that this "trend" does not necessarily happen after an election, but only when share price has tumbled too far off.
    "It makes sense for management to buy more stake if there's unreasonable selldown in the company," said another analyst.

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