PETALING JAYA: Share buybacks are on the rise among public-listed companies as they look to support the market price of their own companies amid the Covid-19 pandemic.
While dividends and capital appreciation may be one of the ways for a company to reward its shareholders, share buybacks can be another option, particularly when the company’s share price has dropped significantly.
The effect of a buyback is to reduce the number of outstanding shares in the market, which increases the valuation matrices that are based on the outstanding equity, like PE ratio.
Over the last few weeks, companies that have been buying back their shares included Berjaya Corp Bhd, IGB Bhd, Fajarbaru Builder Group Bhd, Ranhill Holdings Bhd, SEG International Bhd, Glomac Bhd, Tropicana Corp Bhd, Brem Holdings Bhd, Mitrajaya Holdings Bhd and TRC Synergy Bhd.
The companies are in the diversified retail, property, construction, education and utilities sectors. Many property companies have also been buying back their shares regularly over a long period. This is probably due to the property market being lacklustre for years.
However, there are many companies that started earlier this year following the poor economic environment.
In general, share buybacks are a positive sign and a company would buy back its shares using its accumulated cash.
Berjaya Group started actively buying its shares on March 10, after a two-year hiatus. The last time it bought back its shares was on Aug 28,2018.
On March 10, Berjaya Corp bought three million of its own shares at between 22 sen and 23 sen, thus giving it a value of RM666,874. At that time, it had some 53 million net outstanding shares in its treasury.
Fast forward to April 13, and the company now has some 216.5 million net outstanding shares in its treasury. On the same day, it also purchased eight million more shares priced between 19 sen and 19.5 sen, valued at some RM1.55mil. Cumulatively, Berjaya now holds some 4.15% of its shares in treasury.
Another company that has been consistently buying its shares is Ranhill. It started on March 3, at a price of 95 sen, and with zero net outstanding shares in its treasury.
As of April 13, it was still buying back its shares, but at a price of between RM1 and RM1.03. It had accumulated net outstanding treasury shares of 5.11 million shares.
Ranhill’s share buyback also supported its flailing share price. It hit the year’s low at 82 sen on March 19, but has since been on an upward trajectory to reach RM1.02 yesterday.
The number of shares in its treasury make up 0.47% against its paid-up capital.
As for Fajarbaru, it started buying back its shares on March 27, following a four-year hiatus. The last time it bought back its shares was Nov 9,2016.
On March 27, it acquired its own shares at 22 sen, and had 1.47 million shares in its treasury. As of April 13, it was still acquiring shares, but at 25 sen, and had some 2.28 million shares in its treasury.
Most property developers are trading at huge discounts to their book value.
Furthermore, AmResearch said that the Covid-19 pandemic and movement control order may see property transaction volumes decline by up to 30% in the short-term, as seen in 1998 during the Asian financial crisis and Nipah virus outbreak.
AmResearch said most developers were now trading at a price to book value (P/BV) ratio of 0.2 times (x) to 0.4x, with the exception of Sunway (0.88x).
It said based on historical numbers, Malaysian property developers had traded in the range of 0.19x to 0.8x in 1998 and 0.17x to 0.85x in 2008 at their all-year low levels.
Property companies like Tropicana and Brem Holdings hold 2.32% and 4.62% of their shares in treasury respectively.
Glomac Bhd is an example of a property company which has been buying its shares. The latest streak began in Aug 25,2015. It started purchasing its shares at 75 sen and had 1.04 million shares in its treasury.
As of April 13, Glomac has 25.02 million shares in its treasury, making up some 3.13% against its paid-up capital.
Nonetheless Glomac’s share buyback has failed to support the shares as they closed at 29.5 sen per share yesterday.
On a five-year basis, Glomac’s share price has been down almost on a straight line.