Wednesday, 10 January 2018

Crest Builder (5) - Director Selling Down : Bad News Or Good News ?

Publish date: 

On 19 July 2017, an independent director of Crest Builder disposed of 5 mil shares. The disposal was effected through crossing of two blocks at RM1.03. Please refer to The Edge's report below : 

"KUALA LUMPUR: Crest Builder Holdings Bhd non-executive chairman Tengku Datuk Sulaiman Shah Tengku Abdul Jalil Shah has disposed of five million shares, representing a 2.93% equity stake in the company, over the past two days.
According to a filing with Bursa Malaysia, the shares were sold by his privately-held vehicle Pertiwi Positif Sdn Bhd via two blocks of three million and two million shares at RM1.03 per share, totalling RM5.15 million.
Following the sale, Tengku Sulaiman Shah’s indirect interest in the company stood at 1.8 million shares or 1.059%.
According to Bloomberg data, Pertiwi Positif was previously the third-largest shareholder of Crest Builder, after SC Yong Holdings Sdn Bhd (39.03%) and Koperasi Permodalan Felda (4.37%).
Crest Builder’s share price closed unchanged at 1.08 yesterday, with a market capitalisation of RM182.64 million."

Disposal of shares by Directors is usually not a good thing. I was expecting share price to come down the next day. However, that was not the case. On 20 July 2017 (the day after the announcement), a huge buyer surfaced to provide buy queue below RM1.09 (the price before announcement of director disposal). This is sign that somebody does not want the price to weaken. The buy queue worked and price stabilised with no material retail sell down. 

When a director pares stake in a company, there are two possibilities :
(a) something bad has happened to the company (for example : coming quarter result is bad); or
(b) the company is working with funds (or syndicates ?) to push up the stock. This can be done by placing out certain amount of shares to funds at cheap price (in this particular case, RM1.03 ?). The funds will then make a commitment to average up by acquiring more shares from open market, thereby pushing up the price to a desired level. 

I believe that (a) above is unlikely. The MD has recently mentioned that 2017 earning will be strong (please refer to my previous article). 

As for (b), the company does have the incentive to do it. The founder of the company, SC Yong, passed away two years ago. His wife and son are now helming the company. The son is still young at age of mid thirties. He is quite a capable young man. However, putting myself in the shoes of the widow Mrs Yong, as a defensive measure, I would like the company to have more financial resources. Crest Builder has wanted to do a placement back in 2014, but called it off in 2015 after stock price declined due to bad market sentiment. Now that fundamentals has improved, maybe it is time to revisit the placement proposal by first of all, ramping up share price to coincide with good results ahead ? 

Before I end this article, I would like to qualify that I do not have access to insider information. My conspiracy theory of funds / syndicates pushing up share price is purely a speculation. Only time can tell whether I am right or plainly wishful thinking. Please do not blame me if things do not work out well in the future. Your money, your risk your reward. 

Have fun !!!

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