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We think that the subdivision and bonus issue last November was done to increase the number of shares allowing KWAP to come in. Obviously without liquidity the stock gets a little volatile and most institutions do not like volatility on collection stage.

As we can see from the latest annual report, KWAP owns 11.6% of the company and we think that with the management luring KWAP’s interest into their company would be a value added in terms of stock pricing.

Somewhat like INARI few years ago, with the appearance of institutions such KWAP inside the shareholding structure, it pushed the stock price upwards demanding higher valuations. The simplest way to tell is that it trades at a PE higher than its peers.

Introduction of institutions at times see re-valuation for the stock itself making it somewhat more ‘valuable’ than a non-institution owned. That is why we can be ahead when institutions are buying smaller companies.

Rights Issue?

If we are KWAP, we would suggest a rights issue to increase the number of shares and probability of a dilution in case one might forgot to subscribe (it can happen to retail). Furthermore, newly acquired cash can be used for capital expenditure.

Once again we reference this to INARI’s case when KWAP came in and started acquiring in 2014. The rights issue were executed for the development of new factories but weirdly the company still has cash and paid out dividends the next quarter. Investors might be asking “why did you take money from us in the first place?”.

It could be that the actual cash realized from the growth in revenue exceed their forecast and expectation. But it is not common as well to see companies using rights issue to increase the share issue size allowing new investors to come in or increase the ownership by diluting their minority shareholders who are unaware.

What To Expect Now

Expect to see increased interest from institutions with more and more liquidity introduced to this counter. Not only we see KWAP but hopefully more institutions like EPF would take part in this counter as well.

We are not confident with the upcoming report as we believe the US dollars from the month of Jan 2018 to Mar 2018 would work negatively towards the company’s earnings report.

Nevertheless, if you do not care about temporary setback for pricing then the chart actually points to return higher as it broke its downward trending line when it hit RM2.40 a week ago.