Koon Yew Yin's Blog

How to interpret company announcements - Koon Yew Yin

Koon Yew Yin
Publish date: Tue, 21 Apr 2015, 04:13 PM
Koon Yew Yin
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An official blog in i3investor to publish sharing by Mr. Koon Yew Yin.

All materials published here are prepared by Mr. Koon Yew Yin

According to Malaysian Securities Commission’ rules all listed companies have to make announcements of their quarterly results and other business activities that are unusual to their daily business operations.

I would like to share with you my experience on how to interpret and take advantage of the various announcements as follows:

  1. Announcement of quarterly result: this is often a catalyst to move share price. If the profit is good, the share price will go up but if the profit is not good the price will likely come down.
  2. Announcement of purchasing a large piece of land for development eg MRCB’s recent announcement of signing the S&P agreement to buy the Germen Embassy land in KL for a few hundred million Ringgit. Many investors would think that it is a wonderful deal to be able to own and develop the property right in the heart of KL. But smart investors with some imagination must consider this purchase very risky in view of the oversupply of properties in KL.  Moreover, it will take about 7 years to complete the project from planning approval to construction and sale of all the properties before you can see the financial result. At the mean time, investors are exposed to 7 years of risk.
  3. Announcement of company share buyback is tricky to interpret. It can mean that the management wants to buy back its own shares because it is undervalued. But sometimes the management wants to prop up the price to stop the price from falling because of poor quarterly result. Investors must look at the profit growth first before buying the share. You may be tempted to buy because the chart says so. Share prices can be manipulated if the daily trading volume is small.  
  4.  Announcement of right issues with free convertible warrants can be tempting to many investors. You must be careful to examine the true reason for calling the right issues. Do not subscribe blindly. Quite often due to poor management, the company has poor cash flow and the business has too many challenges. As a result, the company needs more cash. Moreover, this kind of announcement will push up the share price, offering you a chance to sell at a better price. You must remember that good profitable companies do not need to get money from calling for right issues.
  5. Announcement of bonus issues is usually a good sign that the company is able to accumulate sufficient profit to issue more shares to benefit shareholders. This announcement will push up the share price. Of course the price will be adjusted soon after the bonus issue and the price will go up again if the company continues to show good result.
  6. Announcement of share placement of not more than 10% of the total issued shares is a good sign that there is demand by fund managers to own these shares. If they buy them from the open market, it will cost more. This is reassuring to all existing shareholders because the big buyers would have studied the operation of the company in great detail before making such a big financial commitment. They should not think that their interest is being diluted. They must bear in mind that the company will have more cash for expansion which will benefit all the shareholders.
  7. Announcement of a new substantial shareholder who bought all his shares from the open market is a good sign. According to S.C. rules, any investor who owns more than 5% of the total issued shares has to declare his interest. He has also to announce if he subsequently buys or sell the shares because his action will affect the decision making process of other investors.
  8. Announcement of Company Directors’ buying or selling shares is a good indicator of the true value of the shares. All company directors have to make announcement when they buy or sell their shares. If they continue to buy more shares, it is a healthy sign, provided you know that the company is really doing well and that they are not buying them to simply push up the share price.
  9. Announcement by a contractor of securing a large multi million Ringgit contract for the construction of a big project through the open competitive tender system will often encourage investors to rush in to buy the shares in anticipation of the company’s profit growth prospect. Many would think that the contractor with additional work would naturally make more profit. You must remember contracting is a very risky business because of the open tender system. The contractor has to take a lot of risk to submit the cheapest price to win the tender. That is why there are so few really successful listed contracting companies. Very often building contractors are also property developers.
  10. Announcement of dividend is a good indicator of the company’s performance. The company that declares increasing dividend is definitely a good company. This shows that it has positive cash flow and can afford to benefit all its shareholders. This sort of company will not need to call for right issues to raise cash for expansion.
  11. Announcement of privatization of the listed company is rare but when you see this type of announcement, you can make money if you know how to position yourself. The controlling shareholders offer to buy up all the outstanding shares that they do not already own, usually at a higher price than the current market price. As soon as you see the announcement, you can buy it before the price go up to the offered price. If you consider the offer is unreasonable, you can wait until they offer a better price. You must bear in mind that the better offer may not come and it may be more advantage to accept the cash offer and use the cash proceeds to buy other shares.   

Conclusion: There are about 1200 listed companies and many of the companies are making announcements every day. It is impossible to read all the announcements. After you have read the above guidelines, you can select the useful announcements to read to save time.

Under the current condition, I will not read announcements by building contractors and property developers. I am not interested to know about huge land transactions.

I will also not read companies that have poor profit growth prospect.

As you know, our Ringgit is the lowest in the last 5 years and readers should look at announcements by companies exporting their products in US$.                

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Discussions
21 people like this. Showing 24 of 24 comments

AyamTua

bro.. beli Glotec bro... yg tua pasti mudah.. wa yakin bro... brooo!
wakakakkakakakakakka ha ha ha

2015-04-21 16:26

AyamTua

thanks for the informative article bro... semoga sihat..... amen...

2015-04-21 16:27

NOBY

short and informative. Thank you

2015-04-21 16:29

speakup

Good one from the sifu himself

2015-04-21 16:51

matakuda

Thanks Uncle K for the above enlightenment.

2015-04-21 17:06

maxkiller

Thanks for your kind advice, Mr. K

2015-04-21 19:30

rosetan

Thanks for your sharing.

2015-04-21 21:14

xyxy8

Thanks Mr Koon. I have just made a copy of your post so my friends can read it too.

2015-04-21 22:43

scy55309

lol...

2015-04-22 00:09

20012015

Thank you

2015-04-22 09:35

sosfinance

Is it rational to look beyond local stock market? Diversified into other currencies and other economies.

Yes, there are opportunities in local, but, don't forget, there are many VALUE growth stocks outside Malaysia as well. The issue is, how do we identify them? With internet and great website, it is very possible.

Have a broader view. Some financial planning tips in www.sosfinancialplanning.blogspot.com

2015-04-22 10:03

Chris Ng

Thanks for your sharing.

2015-04-22 10:11

mazda626

thank you.

2015-04-22 11:55

seraph

thanks Mr Koon.

2015-04-22 11:58

kkng0819kk

Sound logic but hard to follow cos ppl always invest with emotions

2015-04-22 12:30

John Woo

very useful.

2015-04-22 14:44

chankp7010

Mr Koon, very well written. I really appreciate it. Please keep writing good reports to enlighten us. Once again thank you very much

2015-04-22 14:50

SentulMali

Thks for sharing but IMHO bonus issues are normally meant to con the shareholders into believing that the Co is rewarding them. BI is good if the share price is very high and the BI is to lower the price to make it more "tradeable" or management wishes to retain cash for future capital expenditure. Else why bother BI when easier to declare dividend or higher dividend. Therefore BI also means that whilst the Co is making a lot of "Profit" it has no money to declare dividend.

2015-04-22 15:01

kakashit

i agree with no.8 Announcement of Company Directors’ buying or selling shares

checking insiders' transaction is my everyday's homework, whereby u can find many undervalued gems there

insiders disposal also signaling u the timing to sell

2015-04-22 15:46

rlch

50 years experience investors like Mr Koon Yew Yin definitely are better than rest of us. Thanks for sharing.

2015-04-22 17:03

harvestent

thanks for sharing

2015-04-22 22:26

winwizard

Thank you

2015-04-22 23:50

aurora00

Thanks for sharing

2015-04-23 03:00

twinkle

Thank you so much for your generous sharing. I'm a newbie, trying to learn. :)

2015-04-25 14:23

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