TM- take your profit ahead of the capital repayment

I have recently posted about TM being in a sweet spot because it would be paying out a dividend of 14.25 sen (ex-date: May 20) & a capital repayment of 98 sen (ex-date: May 27) to its shareholders. At that point in time, I was indifferent as to whether one should buy the stock & go through with the two pay-outs or sell just before the ex-date of the capital repayment, but after pocketing the dividend of 14.25 sen (that's to get the capital gain from a higher share price & to forgo the capital repayment of 98 sen).

However, I have now come to conclusion that you should go for the second route after witnessing the recent weakness in TM's share price. Here is my reasoning: I have expected TM's share price to adjust slightly after the ex-date of the dividend of 14.25 sen (ex-date: May 20) because most investors would not sell the share but wait for the capital repayment of 98 sen (ex-date: May 27) or at least realize your capital gain by selling the stock as the May 27 dateline approaches. That was not what happened. The selling after the ex-date of the 14.25 sen dividend was sufficient strong that the share price adjusted downward for almost the entire amount of the 14.25 sen dividend paid off (i.e. dropping from a close of RM3.98 on May 19 to RM3.84 this morning). This is an indication that if you choose to go through with the capital repayment of 98 sen, the share price will adjust downward for the entire amount of the capital repayment of 98 sen to be paid off. Not only that! Looking at how willing are the sellers to dispose off TM presently, I believe that there are some big shareholders who are selling into strength as TM's share price rose ahead of these two payouts. I have a strong feeling that they will not hesitate to sell after the ex-date of the capital repayment of 98 sen even if the share price is lower that the reference price (which is arrived at by deducting 98 sen from the closing price on the last cum date).

Based on the above, I would recommend that you take your profit over the next few days, up to May 26 (the last cum date for the capital repayment of 98 sen). May the best price be yours.


Chart: TM's 15-min chart as at 20090521_11.15am (Source: Quickcharts)