CHINWEL (5007) - Letter to Chin Well



CHINWEL (5007) - Letter to Chin Well

The Board of Directors,
Chin Well Holdings Berhad together with sister companies are one of the biggest group of fastener manufacturers, if not the biggest. With the high quality, efficiency and timely delivery of your products, your company’s share deserves a higher rating.
I am writing this letter, as a shareholder, for the board’s consideration to benefit all shareholders.
  1. ISSUANCE OF BONUS SHARES
I propose the company issue one bonus share for every 4 shares held by shareholders. This process will increase the number of shares in circulation.
From my long experience, your share price will immediately goes up by about 25% because shareholders would not sell their holdings with the prospect of getting 1 share for every 4 shares they are holding.
Management must realize that the company is like giving out cash to all the shareholders including the controlling shareholder in Taiwan without actually costing any money to the company. It is like the Government Bank Negara has given your company a license to print money.
  1. INCREASE OF PAYOUT IN DIVIDEND
Since the company is cash rich, it will improve the confidence of shareholders if the company declare higher dividend policy, say 50% of the annual net profit from current 40%.
This will attract the attention of the institutional investors that include Employees Provident Fund (EPF) and Tabung Haji. These long-term investors will support the share price of Chin Well.
  • PRIVATE PLACEMENTS
History has shown that share price will rise more quickly if corporate exercises that include bonus issues/split shares/free warrants are carried out.
When the share prices have gone up, Chin Well can leverage on them by selling more shares via private placement so that Chin Well have funds to do expansion or acquire a new subsidiary. Chin Well has the “license for printing money” as allowed by Bursa Malaysia. As per Bursa Malaysia’s regulations, all listed companies are permitted to sell 10% additional shares to institutional investors every year. In this regards, Chin Well can issue close to 30mil new shares to an institutional investor(s). The fresh funds Chin Well raise can be deployed to acquire new subsidiaries of similar businesses in Vietnam or even other countries.
  1. CASH PILE
At present, Chin Well has cash and cash equivalent of RM132.9mil and borrowings of RM60.3mil. The net income interest is too small for shareholders. Chin Well should acquire a subsidiary of similar businesses which can give shareholders earnings more than interest income.
Besides this, another way to put the cash to work is to buy back your own shares. Bursa Malaysia allow all listed companies to buy back their own shares not more than 10% of total outstanding shares every year.
The shares bought back can then be cancelled thus increasing the Earning per Share in the process. Nothing is safer than buying back own shares. If the company bought back 10% of the total issued shares and cancelled them, every shareholder would be literally richer by 10% for doing nothing.
Chin Well’s current share price is almost close to its NTA. This is a sign that the company’s share is undervalued.

CHINWEL (5007) - Letter to Chin Well
http://koonyewyin.com/2016/11/10/letter-to-chin-well/