A comforting trend. Against the sluggish market condition, we note a comforting trend from either companies resuming or activating buybacks on their own, or major shareholders emerging buyers. These are certainly signals of confidence to the investment community, and more so to minority shareholders during the trying period. In this report, we compile these transactions which we believe would be of interest to investors, categorising into:
·Companies activating buyback;
·Companies resuming buyback;
·Major shareholders adding stake (limited to transactions involving more than 0.1% stake).
The cut-off date for this report is up to filings to the KLSE as of March 20, 2003.
Who has activated buyback? So far, we have three cases of companies activating buyback for the first time ever in March 2003. They are APM Automotive (RM2.41) and Crescendo Corp (RM0.84) which are listed on the main board, and Hai-O Enterprise (RM0.97) on the second board.
APM ? Of the three, APM has only made a cameo appearance so far. APM bought 250,000 shares, or 13% of its trading volume, at between RM2.19 and RM2.24 on March 5. Its share price has since rebounded, consistently closing above RM2.30. Here, it looks as if we can count on share buyback support when the share price approaches RM2.20.
Fundamentally, we remain positive on APM, which is expected to see double-digit growth in 2004 after a consolidation year in 2003. APM trades at 7 times 2003 price-earning ratio (PER) while offering 4.4% net dividend yield.
Crescendo and Hai-O Meanwhile, both Crescendo and Hai-O trade below par value and are not under our coverage. Crescendo is a construction/property company while Hai-O is mainly involved in the wholesale and retailing of Chinese wine, herbs and medicine.
Based on annualised profit from the latest results, Crescendo trades at about 7 times PER on flattish profit, and Hai-O, about 19 times PER on improving performance. Price to net tangible asset (NTA) for Crescendo is 0.4 times, while net debt was about 22% of shareholders’ funds at end-2002. Hai-O, which had about 9 sen per share in net cash, is valued at 0.8 times NTA.
Who has resumed buyback? At the same time, eight companies have resumed buyback in March (see table). Of the eight, the two consistent candidates are IOI Corp (RM4.70) and YTL Cement (RM2.99).
YTL Cement, BToto, IOI Corp, Bolton ? Of the four companies under our coverage, we have a BUY on YTL Cement, and HOLD on Berjaya Sports Toto (BToto) and IOI Corp.
? Hunza Consolidation, Insas ? As for the other four companies, two were below par value and in the red in the latest quarter, i.e. Hunza Consolidation (RM0.79) and Insas (RM0.40). Hunza is in food/packaging while Insas is primarily a stockbroker. Hunza lost 18 sen per share in 2002, and Insas, 1.8 sen per share in the first half to December 2002. Insas trades at 0.4 times NTA with net cash backing, while net debt for Hunza, which is valued at 0.6 times NTA, amounted to 76% of shareholders’ funds.
DNP and Hock Seng Lee DNP Holdings (RM0.61) is mainly in garment manufacturing. The company was profitable with a relatively low earnings per share (EPS) of 1.7 sen in 2002, from which it has declared a net dividend of 1.4 sen per share (2.3% yield). NTA stood at RM1.92 per share at end-2002 while net debt was fairly manageable at 16% of shareholders’ funds. By and large, we are not keen on garment manufacturers due to concerns over competitiveness.
Hock Seng Lee (HSL) (RM2.02) is an east Malaysia-based construction company. HSL posted a set of good results with 63% EPS growth to 16.3 sen in 2002, when net cash stood at about 28 sen per share, and NTA, RM1.82 per share.
The implications of buyback At this juncture, it would be appropriate to reiterate our view that share buyback would cushion prices in a jittery market, which is the case now.
Ultimately however, investors should buy stocks based on respective fundamentals. It is hence important to note that normal buybacks can only cushion downside, but will not drive re-rating, which will have to be driven by fundamentals and valuation. Of the 11 stocks which kicked off or resumed buyback in March, five are on our active coverage, for which we have a BUY on APM and YTL Cement.
Vote of confidence from major shareholders at ? Let us now turn to check out major shareholders who added stakes during the March selldown. What’s interesting here is that among the 17 companies where major shareholders added more than 0.1% stake in March, there is absolutely no overlap with the buyback candidates, coincidence or otherwise.
Among the notable votes of confidence for stocks under our coverage came from KL Kepong (RM5.70), Nestle (RM20.00), Mesiniaga (RM3.78), Unico-Desa (RM1.95) and United Kotak (RM1.56). We are buyers of KL Kepong and would HOLD Nestle for its management and superior dividends.
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