Wednesday, February 23, 2011

Kulim- time to take profit

Kulim is one of the top performing stocks today. As at 3.00pm, it was trading at RM15.80 a- a gain of 54 sen over its close of RM15.26 yesterday. That's very good in the current depressed market. The reason for such stellar performance is because the stock is on the last cum date for a very handsome 1-for-2 share split cum 1-for-1 bonus issue cum 1-for-8 free warrant distribution. If you own one board lot of 100 shares today, you would see your shareholding growing to 400 shares overnight (plus 50 free warrants).

A few months ago, stocks with generous freebies enjoyed spectacular price run-up. Kulim had similarly benefited from this out-performance. One could also attribute the rally in Kulim over the past 4-5 months to the brouhaha surrounding its possible sale of indirect subsidiary, KFC as well as the good financial performance (from its plantation & fast foods divisions). However, there is no denying that the current rally which began on February 14 was due solely to the fixing of the last cum date for the aforesaid entitlement.


Chart: Kulim's daily chart as at Feb 23, 2011_3.00pm (Source: Quickcharts)

The big question is should you go through with this entitlement? My gut feeling is saying NO. All out-performance would eventually correct itself. Some call it 'reversion to the mean'. Whatever you may call it, the risk is very real. If in the past few days or weeks, you have been seeing a spectacular rise, you could be seeing the opposite after the entitlement date. Imagine a correction of 10-20 sen in the share price and then multiply that by 4. This correction may not happen overnight but it is likely to happen in the near future. After all, what is there to look forward to in Kulim? The KFC sale did not happen. The generous bonus issue cum share split would be a thing of the past. Finally, even CPO prices are sliding off. Based on all these factors, I think the shareholders of Kulim is better off taking profit today rather than going through with the entitlement.


Chart: CPO's weeky chart as at Feb 23, 2011 (source: ifs.marketcenter.com)
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3 comments:

  1. UnknownWednesday, February 23, 2011 4:54:00 PM

    Hi Alex,

    Off topic a bit and wanting some pointer.
    What is the difference between share acquired and share transacted?

    ReplyDelete
  2. Ethan LeeThursday, February 24, 2011 6:51:00 AM

    Hi Alex,

    MITRA has proposed share split, bonus issue and free warrant recently, but what do you think about MITRA? Can you share your comment.

    Thank you.

    ReplyDelete
  3. Alex LuThursday, March 03, 2011 2:47:00 PM

    Hi Ethan Lee

    MITRA has proposed share split, bonus issue and free warrant which is similar to Kulim's completed exercise. Since the entire exercise does not raise any money, it is very shareholders-friendly & thus good for the price of the stock. In addition, you must note that Mitra is a very profitable company. All these should be very positive.

    However, Mitra has jumped from RM1.20 in December 2010 to the current price of about RM1.90-2.00. Aftre the big move, the stock may consolidate before going higher. The current cautious market would also negatively affect the share price. These may explain why the stock broke below the short-term uptrend line support of RM2.00 yesterday. If there is no quick recovery, Mitra may slide to RM1.60 & then RM1.40. Let's wait & see.

    ReplyDelete