Short Position: Fallout from Ooi’s arrest


  • Corporate News
  • Saturday, 25 Jan 2020

SHARES in British American Tobacco (M) Bhd (BAT) do appear to have been stubbed out by investors, with the once-pricey share, in terms of price alone, hitting multi-year lows.

Fallout from Ooi’s arrest

THE nature of the suspension of ATTA GLOBAL GROUP BHD and Heng Huat Resources Group Bhd last week came as a surprise. This week, further disclosure on why the Securities Commission (SC) ordered for the two stocks to be suspended is shocking.

According to announcements, the police have remanded Ooi Chieng Siem, who is the executive chairman of both companies, to assist in investigations connected to drug-related offences. Ooi’s personal accounts and share trading accounts have been frozen.

Apart from Ooi’s personal accounts, the bank accounts of nine subsidiaries under Atta Global have been frozen and the authorities have seized several vehicles owned by the company.

The bank account and share trading account of Ng Chin Nam, who is an executive director of Atta Global and Heng Huat, have been frozen as well.

Atta Global said that the seizure and freezing of accounts would impact its operations. As for Heng Huat, it said that the accounts of two non-major subsidiaries were frozen.

Heng Huat also stressed that the remand of Ooi, the investigations by the police and the freezing of the accounts of the two subsidiaries would not have any impact on its operations and management.

However, will it have an impact on the share price of both companies when trading resumes?

It certainly would, as Ooi is a major shareholder in both companies.

It is not only in Atta Global and Heng Huat that Ooi is a major shareholder. He is said to hold substantial stakes in at least seven other companies. One of them is PBA Holdings Bhd, which is the company that treats and supplies water in Penang.

According to the latest annual report, Ooi holds 5.37 million shares and is the fourth-largest shareholder in the company.

Considering that his trading account has been suspended, it is highly unlikely there would be any major selling of shares Ooi holds in the listed companies. However, it is almost certain that the lines of margin financing to purchase shares in Atta Global, Heng Huat and a few other companies would come under some kind of scrutiny until the investigations are over.

Smoked

SHARES in BRITISH AMERICAN TOBACCO (M) BHD (BAT) do appear to have been stubbed out by investors, with the once-pricey share, in terms of price alone, hitting multi-year lows.

With its shares trading at RM11.14 a share and down 80 sen yesterday, it has hit a level last seen in January 2002. The precipitous fall in the share price has people scratching their heads over what has happened.

BAT has been under pressure for years from the illicit cigarette trade to the switch to vaping products. Now, with tobacco heated products adding a new twist in terms of competition, its profits have been on a downtrend for some time, forcing the tobacco company to finally shutter manufacturing operations in Malaysia.

It is cheaper to ship in cigarettes from Indonesia than make them here, but the company cannot fight the illicit trade by itself. Government assistance on this seems vague, as there was a flurry of arrests last year, but it does not appear to have a lasting impact, given the falling profits of the cigarette players in the country.

As the number of taxed sticks sold in Malaysia continue to drop, it will have an impact on big players like BAT. But is the fall in the share price overdone, even if the additional risk of the prescription to ESG investing taking grip among the big funds makes shares like BAT less appealing?

RHB Research certainly feels it is, with the research outfit calling the stock a “buy”, given its solid yield and potential improvements to its bottom line should new regulation on vaping get passed by the government.

That could happen in the months ahead, but it is the yield that BAT is trading at now which prompted the research house to call a “buy” on the stock.

While its yield is superior to many stocks in the market, is that enough for investors to bite and disregard the continued slide in profits? It bears watching in the weeks ahead, as its share price movement may offer answers to that question.

Understanding share consolidation

SOME weird trades took place this week involving the shares of Icon Offshore Bhd. During the week, the shares of the company underwent a 50:1 share consolidation exercise. But upon its trading after the exercise, the shares hit limit-up twice. Subsequently, the heavily traded shares began to fall.

Yesterday afternoon, Bursa Malaysia decided to designate the trading of Icon Offshore shares. So what happened? As far as we can see, there was nothing fundamentally different about the underlying business of Icon Offshore, a debt-laden offshore support vessel (OSV) operator.

So, why should its shares shoot up and down so drastically with two days of trading? Some brokers reckon that this is what could have happened. Recall that post-consolidation, the number of Icon Offshore shares shrunk significantly from 2.377 billion shares to a mere 47.5 million shares. As one broker explains, that number must be one of the fewest number of shares of a listed company.

With so few shares in circulation, it is likely that some active buying had the effect of nudging the price up easily. That explains the limit-up incidence. What happened next, though, will be widely discussed in the coming days.

The main theory being espoused now is that some investors oversold their shares, not realising that the actual number of shares they owned had decreased by 50 times. The exchange had instructed all brokers to inform their clients about the impact of the share consolidation exercise. If indeed investors oversold their Icon Offshore shares, who is to blame?

Share consolidation exercises are not new to the market. Investors ought to read all the material that is sent to them in relation to their holdings. Just watching your share price spike up and assuming your shareholdings are the same as prior to any consolidation exercise can only lead to painful results.

Any investor who had oversold their Icon Offshore stock will now have to deal with that painful lesson.


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