Wednesday, June 01, 2011

MFlour- It's Complicated?

MFlour proposed a 1-to-2 share split and thereafter a 62-sen dividend (before tax of 25%) or 46.5 sen (after tax) for each subdivided share plus a Rights Issue ('RI') of 2 RI shares c/w 1 free warrant & 1 bonus share for every 2 sub-divided shares. For example, if you have 1 share on the entitlement date, you would end up with 5 shares, 1 warrant & cash of RM0.93 (provided you subscribe for the RI at the indicative price of RM0.93 per RI share). I believe the shareholder will be given the option to offset the dividend receivable against the RI subscription sum. For convenience, most shareholders would opt for that route and the entire exercise could be a cashless transaction.

MFlour explained that the RI proceed is needed for the construction of factory buildings and purchase of plant and machineries as part of its expansion plan as well as for working capital requirement. Of course, this is a moot point since the money for the RI is exactly the same as the dividend receivable by the shareholders. I believe the company chose this rather convoluted & cumbersome exercise for tax reason, though I do not know what's the tax advantage.

All in all, MFlour's outstanding shares will increase from the present 107.645 million units to 538.225 million units (plus 107.645 million warrants). I am not thrilled by this "share printing" exercise- something which is borrowed from the Fed's gamebook.

From the intra-day chart, we can see that the stock is experiencing some correction after a sharp rally. Its immediate support is at the psychological RM8.00 mark & thereafter at the horizontal lines RM7.70 & possibly (though not very likely) RM6.90.


Chart: MFlour's 15-min chart as at Jun 1, 2011_3.00pm (Source: Quickcharts)
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5 comments:

  1. NightwatchmenWednesday, June 01, 2011 10:39:00 PM

    Hi Alex.

    May i lnow how does we calculate the ex all price and what assumption we use to fix the price? thks

    ReplyDelete
  2. Alex LuFriday, June 03, 2011 12:01:00 PM

    Hi nightradersdk

    If you ignore the special dividend (because it is used to subscribe the RI share) as well as the value of the free warrant, the theoretical ex-rights value is the share price on the last cum date divided by 2.5.

    I have been asked this question very often. I am curious to know why are you interested in this value. How does it help you in your decision-making?

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  3. SunnySunday, June 19, 2011 12:22:00 AM

    Fundamental point of view, how much you think is the fair price range for MFLOUR? Or is there any latest research report we can refer to?

    ReplyDelete
  4. SunnySunday, June 19, 2011 12:41:00 AM

    Share printing... a simple and sharp explanation. I believe there could be something to do with following reasons:

    (1) boost the share price (temporarily), which is already done

    (2) increase the trading volume making the shares more liquid

    (3) for major shareholders to further increase their stake of shareholding if some of the minor shareholders reject the RI

    Once (3) is achieved, perhaps there will be a dividend payout policy change (to higher payout rate).

    I don't think there will be further expansion at the moment and the expansion could have been already done and that high earnings could lead to higher dividend yield. Because share price is sensitive to dividend yield, when dividend yield increases, the share price could up another 10 or 20%. Then, the value of the free warrant will be justified then.

    This is just my wild guess. What do you think?

    ReplyDelete
  5. Cool tak cool sangatMonday, June 20, 2011 2:05:00 PM

    lookin at its ups and downs, any comments, guys? it strikes bac 7.32 a moment ago thr was once it down to 7.04 few days bac. wise to keep some frm now?

    ReplyDelete