YESTERDAY Bintai Kinden Corp Bhd announced its intention to diversify into property development and management as a strategy to reduce its “reliance solely on the mechanical and electrical (M&E) engineering business”.
Ironically, this comes barely half-a-year after the company unveiled its venture into the distribution of COVID-19 vaccines in August last year.
Recall that its unit Bintai Healthcare Sdn Bhd was granted the exclusive rights from Generex Biotechnology Corp and its subsidiary NuGenerex Immuno-Oncology Inc to distribute, sell and commercialise COVID-19 vaccines in Malaysia, Brunei, Myanmar, Cambodia, Timor-Leste, Indonesia, Laos, the Philippines, Singapore, Thailand and Vietnam.
It has been an open secret that many penny stocks have taken a plunge into the glove, vaccine or personal protection equipment (PPE) industry since the middle of last year, taking the cue mainly from the glove stock craze.
Sustainability-wise, however, jumping into an alien venture from their core businesses in search of what is perceived to be “better fortune” may result in the much anticipated return of investment (ROI) being illusive.
In Bintai Kinden’s case, its current stock price has more than halved from the intraday peak of RM1.47 in December last year.
The company is not alone in pursuing such ambitious plan. Yesterday INIX Technologies Holdings Bhd announced that the company’s venture into the glove industry has taken off following a share sale agreement (SSA) with L&S Gloves Sdn Bhd which signifies the completion of a 51% share acquisition in the glove manufacturer.
For the ACE Market-listed software company, the glove venture is pursued alongside its COVID-19 vaccine business which application has been submitted to the Malaysian National Pharmaceutical Regulatory Agency (NPRA) but pending the furnishing of additional information as requested by the NPRA.
As for CNAsia Corporation Bhd which is currently involved in the manufacturing of skid tanks, it divulged a potential artificial intelligence (AI) venture yesterday after just having inked a memorandum of understanding (MoU) to establish a consortium to provide digital banking services for women earlier this month.
FocusM turned to Minority Shareholders Watch Group CEO Devanesan Evanson for his take on this latest development of “over-diversification” from the core business:
“Diversification is an accepted risk management strategy whereby the concentration risk of being involved in only one sector is avoided; you do not put all your eggs in one basket.
The premise for being involved in more than one sector is the assumption that when one sector is down, the other sectors may prop up the company.
Of course, diversification comes with its own set of risks like management expertise and competency and a whole host of other execution risks.
A public listed company (PLC) may announce a planned diversification for one of three reasons. Firstly, it is to ensure that not all eggs are in the same basket; that when one sector is down, another sector/s may prop up the company.
The second reason is to capitalise on a sector that is making super profits like the glove sector or vaccine play. Thus, we have instances of property counters venturing into gloves business and mechanical and engineering companies venturing into the vaccine play.
Thirdly, some PLCs announce diversifications as a ruse to drive up share prices. Once, the share prices have run-up, the diversification initiatives fizzle out and there is no dearth of reasons for the failure of the initiative.
It is in these instances that minority shareholders have to be diligent as the intention of companies announcing diversifications is less than noble. The reputation of the company and its track record are useful guides in discerning such companies.
Having said that, there are shareholders who suspect that the announcement is to drive share prices up, but nevertheless speculate (punt) the shares with the hope that they will be able to cash-out before the share price tanks (before the music stops).
There is nothing wrong with speculation as long as it does not enter the realm of manipulation. Speculation is an acceptable trading strategy though it is riskier than other trading strategies and requires a higher risk appetite.” – Jan 22, 2021
