ANOTHER bout of bloodbath on Big Four glove stocks on Monday (Jan 4) was followed by yet another much anticipated personal share acquisition.
In a filing to Bursa Malaysia yesterday (Jan 5), Top Gloves Corp Bhd notified the exchange that its executive chairman and founder Tan Sri Dr Lim Wee Chai bought 3.62 million shares at an average price of RM5.5217 per share or RM20 mil in total on Jan 4, thus raising his direct interest to 2.1 bil shares or a 26.25% stake.
While minority shareholders should rejoice for Lim’s praiseworthy action of rendering his support to the company he founded – and moulded into the world’s largest glove maker today – red flags abound.
“Lim may end up triggering the creeping threshold if he keeps buying shares aggressively in his personal capacity,” forewarned Minority Shareholder Watch Group (MSWG) CEO Devanesan Evanson.
“This is given he is substantially reducing the public float while consequently increasing the percentage of his own shareholding.”
Nevertheless, Devanesan reiterated that Lim’s action of buying his own shares is an indication of his confidence in the company and this gives both confidence and comfort to minority shareholders.
“The same can be said of the company buying back its shares but the company is using all shareholders monies …some shareholders may not agree with the buybacks using the company funds,” he cautioned.
“Anyway, the company is in the business of doing business … not buying back its shares.”
Share buybacks, according to Devanesan, can also create a misleading performance scenario in some instances.
“A company’s earnings can drop compared to the previous year but yet can show a higher EPS (earnings per share) by buying back enough shares,” he justified.
“The numerator (earnings) drops but if the denominator (number of shares) drops by even more (through buy-backs), you end up with a higher EPS when in fact there was lower earnings compared to the preceding year.
“This is why some commentators do not favour buybacks in general.”
As of Dec 15, Top Glove has spent RM1.28 bil on share buybacks since September with RM354.74 mil spent in September and RM802.55 mil in November.
At 9.31am, Top Glove was down 1 sen or 0.17% at RM5.71 with 11.61 million shares traded, thus valuing the company at RM46.83 bil. – Jan 6, 2021
