“Empirical evidence suggests that shareholders and investors tend to view bonus issues positively,” an analyst with a foreign research house told StarBizWeek.
“It is a sign that the management is confident in its ability to service a larger equity base or, in other words, in its capacity to generate more profits and give out dividends on all those shares in the future,” she explained.
TNB on Thursday announced a bonus issue of up to 1.12 billion shares on the basis of one for every four existing shares held at an entitlement date to be determined later. In its filing to Bursa Malaysia, TNB also said it planned to increase its authorised share capital to RM10bil comprising 10 billion shares from RM5bil currently to accommodate the bonus issue.
The bonus issue would not fundamentally change analysts’ earnings forecasts for TNB.
Nevertheless, earnings per share and the company’s share price would naturally be diluted by 20% based on the one-for-four bonus issue after the completion date, which is expected to be in the first quarter of 2011.
TNB yesterday closed at RM8.82, up from RM8.75 on Thursday. Of the 28 analysts polled by Bloomberg, 25 had a “buy” call on the stock, while two said “hold”.
The average target price for TNB as of yesterday was pegged at RM9.94.
“We think more retail participation will be encouraged once TNB’s share price gets diluted as a result of the bonus issue,” an analyst from a local bank-backed research house said. “So, it’s one way of boosting liquidity in that sense.”
TNB had earlier explained that the rationale behind its bonus issue was to reward its existing shareholders and enhance its counter’s liquidity.
OSK Research, while did not perceive there to be a real need for TNB to further boost its liquidity, maintained an encouraging view on TNB’s bonus issue.
“In view of the buoyant local market, we believe that the bonus issue will give TNB a shot in the arm,” it wrote in its report, noting the run-up of the share prices of companies that had recently announced bonus issues, such as LPI Capital Bhd and KFC Holdings Bhd.
Affin Research, on the other hand, said it expected TNB’s stock to be re-rated on the back of robust free cash flow, which stood at RM3bil for the nine months to May 2010. It was also positive on the company’s active capital management in terms of reducing debts and stepping up dividend payouts, as well as the impact of a fuel pass-through mechanism on the company in the longer term.
“TNB is a resilient play that is well poised to benefit from stronger economic growth and potential tariff hike,” Hwang-DBS Research noted.
TNB is presently trading at attractive 11 times its forward earnings for 2011 and 1.2 times book value, compared with its 10-year historical averages of 20 times and 1.5 times respectively, as well as against its peers’ averages of 14 times and 1.4 times.
Well, this is good for TNB minority shareholders.
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