When an UMA query fails to deter the rise of Dataprep

A TRULY rags-to-riches story, share price of Dataprep Holdings Bhd, an information communications technology (ICT) service provider had soared over 772% from a low of 16.5 sen on the eve of Chinese New Year (Feb 11) to close at RM1.44 on March 1 within a fortnight.

The sharp rise in price and volume has prompted the stock exchange to issue an Unusual Market Activity (UMA) query to the company on March 1.

Claiming that it is unaware of circumstances leading to the meteoric rise of its share price, Dataprep said the group has been continuously working on new opportunities to enhance the value of the company.

“The board of directors will make the necessary announcement and comply with Bursa Securities Listing Requirements, in particular Paragraph 9.03 of the Main Market Listing Requirements on immediate disclosure obligations,” added the response to Bursa’s UMA.

Typically, an UMA query seeks to flush out the reasons behind a material rise in price and/or volume of a stock. And if the answer to the query is that the company is unaware of reasons for the share price and/or volume increase, the share price will tend to take a downtrend.

However, this was not the case with Dataprep’s share price. Not only did the UMA query fail to quell interest in the stock, the stock resumed its meteoric rise.

On March 10, the Exchange issued an advice to investors, urging them to exercise caution in the trading of Dataprep shares.

“The exchange will not hesitate to take appropriate regulatory action to ensure fair and orderly trading of Dataprep shares,” the Exchange pointed out in a statement.

The counter closed at RM3.15, after touching an intraday/all-time high of RM3.33 on the day the trading advice was issued.

Like the UMA query, the advice failed to stop the hike in the share price. The share price of Dataprep soared to an all-time high of RM4.13 on March 16 – a staggering increase of 2,400% from the 16.5 sen at the outset of the mind-boggling rally.

Recently, the stock proved that it still had much firepower left by resuming its meteoric run after dipping to a low of 72.5 sen on April 13. For the one-week period between April 14 and 21, the stock had climbed 255% to RM2.57.

No solid ground

For the record, Dataprep is known to be loss-making for several years. Its net loss widened to RM9.78 mil in FY2020, compared to RM5.87 mil a year ago despite a higher revenue of RM36.22 mil (FY2019: RM28.92 mil).

Minority shareholders should determine whether its recently-announced corporate developments are impressive enough to warrant the meteoric share price increases.

On March 18, Bursa Malaysia issued a query letter with ten questions to Dataprep to seek further information.

This was in relation to its earlier announced memorandum of collaboration (MOC) with Asia Coding Centre Sdn Bhd to form a strategic partnership to undertake a project in relation to providing integrated solution technology for COVID-19 screening for the Health Ministry (MOH).

In its query, Bursa Malaysia asked Dataprep to furnish further information pertaining to the collaboration as there was a lack of pertinent information to enable informed investment decision-making by shareholders.

Aside from revealing that the MOC would be effective for three years from 12 March onwards, the company did not elaborate further on other salient information such as prospects of the project, estimated capital and investment outlay, potential project value, et cetera.

In addition, a proposed acquisition was announced on March 15 that would enable Dataprep to acquire 51% of the total issued and paid-up share capital of Asia Biomed Sdn Bhd for RM510 cash.

By all accounts, the MOC and proposed acquisition do not look compelling enough to warrant the steep rise in Dataprep’s share price.

 No smoke without fire

Companies that furnish the standard line that “the board is not aware of any reasons that may have caused the unusual price and/or trading activity” amidst soaring share prices will draw the vigilance of regulators as the share price movements tend towards a not-so-fair and not-so-orderly market in the trading of those securities.

The market regulator has stated that “where the reply to the UMA query is found to be inaccurate or misleading subsequently, enforcement action may be taken against the listed issuer and the culpable directors for breach of the Main/ACE Market/LEAP Market Listing Requirements”.

Dataprep’s share-price resilience has proven that it is not necessarily true that the share price of a company will retreat immediately after being issued an UMA query or when the company replies that they are not aware of any reasons that may have contributed to the material share-price increases.

On the contrary, the share-price of a handful of them surge upwards instead of retreating – this is utterly puzzling.

If you are a fundamental investor, and you see share prices surging upwards meteorically without reason, you should remember the words of renowned fund manager and author Peter Lynch who once said ‘Behind every stock, there is a company. Find out what it’s doing’.

The stock market is not meant to be a casino though some minority shareholders treat it as a casino; just make sure you are not the casino operator – directly or indirectly. – April 26, 2021


Devanesan Evanson is the CEO of the Minority Shareholders Watch Group (MSWG)

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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