Sunday, 31 January 2016

Stock Review – FIAMMA (6939) - 4 (FIAMMA HOLDING BERHAD)


image source from Big Chart Marketplace

image source from Big Chart Marketplace
Bursa Malaysia - 6939
Bloomberg - FHB:MK
Yahoo - 6939 .kl
Webpage - http://www.fiamma.com.my/

Recommendation: -

Date
Status
Price
Current Price (RM)
Accumulate Dividend (RM)
Gain / Loss (%)
28/6/2015
BUY
1.81
1.70
0.00
-6.08%
11/12/15
SELL
1.70
2.31
0.00
+35.88%

On 7 January 2016, FIAMMA prices shot up almost 26 % and continue to 13% the next day make a total of almost 43% in the two day. The sudden spike of the price is most probably the proposal of bonus issues.

Let us look into the bonus issues announcement on 6 January 2016 and the annual report 2015 announce on 29 January 2016 to check whether the sell called still maintain.

Announcement on 6 January 2016

Let look into these multiple proposal which cause the price of FIAMMA spike up. In the announcement there are multiple proposal which going to be table for voting in the EGM on 23 February 2016 after the 33rd AGM. Let look into the proposal one by one and what is the effect:

i)                  Proposed share split (2:1 share split)

If this proposal is pass, FIAMMA share will split from RM 1.00 to RM 0.50. These will cause more liquidation in FIAMMA stock as the share outstanding double. The stock split will make FIAMMA price cheaper and affordable to small investor.

Some investor will think the drop of the share price after the stock split is a good time buy the stock and wait for it to rise back to the price before split. However this will not the case, the stock price drop to half after the stock split because the company is shares between more people after stock split (double the number of outstanding share 1:2 stock split). In actual this does not increase the value of the FIAMMA shares.

ii)               Proposed bonus issue (1 bonus share for every 2 shares owned)

Bonus issue is another way a company can gives back to their investor. If this proposal passes, the investor who has 100 shares in FIAMMA prior to the AGM will have 300 shares (100 shares from stock split and 100 bonus shares).

This will cause the treasury share of FIAMMA decrease and more share outstanding in the market. These will dilute the earning per share.

iii)            Proposed ESOS (Employee Stock Options)

ESOS will only benefit to FIAMMA employees and directors. If this proposal passes, option will distributed to FIAMMA employees and directors.

They (employees and directors) are eligible to exercise the option 20% per year up to 5 years if they exercised their option the stock price will be dilute.

CONS:

  • Bonus issue is similar to dividends issue in term of financial. Bonus issue will reduce the Earning per share of the company.
  • ESOS will not benefit financially to normal investor. It might dilute the share if the employees and director exercise their option.

Exercise of 800,000 Warrants on 6 January 2016

This exercised of 800,000 warrants will dilute the shares outstanding. However some investor did not realised these and push the shares price up after the proposal of bonus issue which announce on the same day. The proposal had not approved yet if the EGM vote no for the proposal there will not be any bonus issue.

CONS:

  • Exercise of warrant will dilute the share.

Annual report 2015

From the annual report 2015, FIAMMA had a loan of RM 168,245,00.00 to be settle in one year time and FIAMMA does not had enough cash to pay the debt base on the annual report.

The diluted earning per share for 2015 increases from 27.34 sen to 36.75 sen. However there is RM 24,838,000 gain in fair value of investment properties which is just paper asset. If we removed the RM 24,838,000 from 2015 earning, the diluted earning per shares is 20.61 sen which is lower that 2014.

2015 annual report showed there is a negative operating cash flow which is not a good sign for a company. The finished good in 2015 had increase compared to 2014 while the work in progress good is reduced significantly in 2015. These might be a sign that FIAMMA inventory is obsoleted.

CONS:

  • There is large amount of loan to be settle in these financial year
  • The increase in EPS for 2015 is cause by increment of fair value of investment properties which is just paper gain.
  • Operating cash flow is negative for 2015
  • FIAMMA goods might be obsoleted as the finished good increase and the work in progress good reduced significantly.