(02-03-2015, 07:13 AM)weijian Wrote: [ -> ]Bonus issues are tricky financial engineering as GF mentioned - It gives one an illusion of extra wealth and at the same time, for the major shareholder+Mgt to subtlely 'squeeze out' the minorities (without majority of them knowing). Rational folks know it is BS when the anyone tries to justify it as 'increasing liquidity'. An astute investor will prefer 'hot and promising' stocks to be in a (positive)cornered situation - in which they will themselves provide the liquidity for new shareholders to buy into.
Hi weijian,
I understand that there is no added value in bonus issues, but why do you say that it 'squeeze out' the minorities?
Won't all stakeholders end up with the same % ownership after the bonus issue, regardless of major or minor?
Hope to clarify for my own understanding, thanks!
(02-03-2015, 07:55 AM)gzbkel Wrote: [ -> ] (02-03-2015, 07:13 AM)weijian Wrote: [ -> ]Bonus issues are tricky financial engineering as GF mentioned - It gives one an illusion of extra wealth and at the same time, for the major shareholder+Mgt to subtlely 'squeeze out' the minorities (without majority of them knowing). Rational folks know it is BS when the anyone tries to justify it as 'increasing liquidity'. An astute investor will prefer 'hot and promising' stocks to be in a (positive)cornered situation - in which they will themselves provide the liquidity for new shareholders to buy into.
Hi weijian,
I understand that there is no added value in bonus issues, but why do you say that it 'squeeze out' the minorities?
Won't all stakeholders end up with the same % ownership after the bonus issue, regardless of major or minor?
Hope to clarify for my own understanding, thanks!
hi gzbkel, the difference comes in the fractional entitlements as Nick had explained earlier. It is small and hence subtle but most minorities wouldnt notice or even mind as long as their system 1 tells them that they feel richer over system2 (who does the maths). For example, a dis-regard of fractional entitlements for minorities is a greater deal (losing 0.5 shares if you only had 1000shares is a bigger portion than losing 0.5shares if you have 100mil shares). The end result is that the major shareholder will end up slightly ahead after 1 issue.
For CMP's case, it is still ALRIGHT because the ratio is 20:1 (1 bonus share for 20shares), rather than a weird looking ratio like 7:1 (1 bonus share for 7 shares) which will create more fractional give-ups compared to the former.
GF had mentioned that a bonus issue generally might be
a company's indication to the market that it is going to raise its dividend. I haven't had as much as experience as he does to be able to discern how infallible this observation might be.
My limited experience tells me that things like (1) payout ratio, (2) foreseeable CAPEX, (3) business conditions, (4) Parent's need for cash, are easier to discern (with higher probability) whether dividend will be increased or not in the forseeable future.
Finally, it would be interesting to observe whether the tax issue that Webb site brought up earlier (link found here:
http://webb-site.com/articles/minsheng.asp) would be applicable for CMP's bonus issue here or not.
(not vested)
(02-03-2015, 09:24 AM)weijian Wrote: [ -> ]hi gzbkel, the difference comes in the fractional entitlements as Nick had explained earlier. It is small and hence subtle but most minorities wouldnt notice or even mind as long as their system 1 tells them that they feel richer over system2 (who does the maths). For example, a dis-regard of fractional entitlements for minorities is a greater deal (losing 0.5 shares if you only had 1000shares is a bigger portion than losing 0.5shares if you have 100mil shares). The end result is that the major shareholder will end up slightly ahead after 1 issue.
For CMP's case, it is still ALRIGHT because the ratio is 20:1 (1 bonus share for 20shares), rather than a weird looking ratio like 7:1 (1 bonus share for 7 shares) which will create more fractional give-ups compared to the former.
It is a fact, but the impact should be minimum, and negligible, IMO. It is not a recurring very quarter, but one time after years.
IMO, bonus issue, is paying existing shareholders with equity, rather than paying full in cash. In theory, nothing changes, but the company has invited existing shareholders to participate the company growth story. The same approach as its M&A's strategy
(02-03-2015, 09:24 AM)weijian Wrote: [ -> ]Finally, it would be interesting to observe whether the tax issue that Webb site brought up earlier (link found here: http://webb-site.com/articles/minsheng.asp) would be applicable for CMP's bonus issue here or not.
(not vested)
Very interesting point. Distribution from retained earning in Singapore is tax free, but it may be complicated with China tax system. A topic worth further investigation...
(vested, thus concern)
(02-03-2015, 11:20 AM)CityFarmer Wrote: [ -> ] (02-03-2015, 09:24 AM)weijian Wrote: [ -> ]hi gzbkel, the difference comes in the fractional entitlements as Nick had explained earlier. It is small and hence subtle but most minorities wouldnt notice or even mind as long as their system 1 tells them that they feel richer over system2 (who does the maths). For example, a dis-regard of fractional entitlements for minorities is a greater deal (losing 0.5 shares if you only had 1000shares is a bigger portion than losing 0.5shares if you have 100mil shares). The end result is that the major shareholder will end up slightly ahead after 1 issue.
For CMP's case, it is still ALRIGHT because the ratio is 20:1 (1 bonus share for 20shares), rather than a weird looking ratio like 7:1 (1 bonus share for 7 shares) which will create more fractional give-ups compared to the former.
It is a fact, but the impact should be minimum, and negligible, IMO. It is not a recurring very quarter, but one time after years.
IMO, bonus issue, is paying existing shareholders with equity, rather than paying full in cash. In theory, nothing changes, but the company has invited existing shareholders to participate the company growth story. The same approach as its M&A's strategy
(02-03-2015, 09:24 AM)weijian Wrote: [ -> ]Finally, it would be interesting to observe whether the tax issue that Webb site brought up earlier (link found here: http://webb-site.com/articles/minsheng.asp) would be applicable for CMP's bonus issue here or not.
(not vested)
Very interesting point. Distribution from retained earning in Singapore is tax free, but it may be complicated with China tax system. A topic worth further investigation...
(vested, thus concern)
CMP is a Singapore domiciled company with subsidiaries incorporated in HK/China. Hence, it is highly unlikely to be directly affected by Chinese taxation rules unless the China based subsidiaries effect a bonus issue.
GG
A worse case diluted scenario with bonus share included will result in abt 1173million shares.
Assuming a bad scenario where earnings remain the same in fy15 (which I doubt), eps will still be abt 10c+. Should be able to maintain 7c div going forward.
Both CIMB and DBS V issued their respective results update on CMP today.
As there is hardly any change in DBS V view on CMP, I have just included CIMB's update.
The comparison table on Page 2 is interesting:
Apart from Guangzhou controlled Yuexiu Transport Infrastructure that trades on 6.4% yield for whatever reason (actually closer to 5.1% - as cimb may have made a mistake), there remains room for yield compression for CMP should investors decide to price it closer to that of HKSE listed peers.
@ 5.5% yield, CMP could trade at $1.27 without any rise in DPS.
Vested
GG
sgd to hkd: 5.7
current free cash flow:
operating cash flow - purchase of PP&E - interest paid
= (1,278,158 - 49,953 - 93,988)k
= 1,134,217k
convertible bond: 815,000k, at 1.25%
if all cb are converted, operating cash flow would add:
815,000k * 1.25% * 77% = +7,844.375k
adjust free cash flow (after cb conversion) would be 200,361.64k (SGD)
option: 4,250k
ordinary share: 1,045,661.570k
RCPS: 135,781k
option + share + RCPS (after bonus issue):
= (4,250 + 1,045,661.57 +135,781)*21/20
= 1,244,977.2k
conversion price adjusted for dividend:
0.826 * ((1.06 - 0.015)/1.06) = 0.81431
conversion price adjusted for bonus issue:
0.81431 * (20/21) = 0.77553
convertible bond (covert at adjusted price after dividend and bonus issue):
(815,000k/5.7)/0.77553 = 184,367.408k
number of shares (if all option and cb are converted to ordinary share):
1,244,977.2k + 184,367.408k = 1,429,344.607k
free cash flow per share: 200,361.64k / 1,429,344.607k
= 0.14018 (SGD)
First of all, feel free to point out if there is any mistake in my number.
My comment:
1. The free cash flow generated is impressive, kudos to the management.
2. Even if business remains status quo, CMP would have no problem maintaining the 70 cents dividend.
3. I must say I do not understand the rationale to do a bonus issue. All along, my assumption is management would make use of equity to (partly) fund its toll-roads acquisitions. A bonus issue would have weaken share price and cause more dilution when equity is used to fund acquisitions (since company would need to issue more new shares).
4. Despite point 3, since the bonus issue is 1 for 20, I don't see an issue for now.
I would like to take this opportunity to thank Drizzt and Nick. Not only because your posts led me to discover CMP, your blog and posts teach me a lot about analysis and investing. Thank you!
(02-03-2015, 11:55 AM)greengiraffe Wrote: [ -> ] (02-03-2015, 11:20 AM)CityFarmer Wrote: [ -> ] (02-03-2015, 09:24 AM)weijian Wrote: [ -> ]hi gzbkel, the difference comes in the fractional entitlements as Nick had explained earlier. It is small and hence subtle but most minorities wouldnt notice or even mind as long as their system 1 tells them that they feel richer over system2 (who does the maths). For example, a dis-regard of fractional entitlements for minorities is a greater deal (losing 0.5 shares if you only had 1000shares is a bigger portion than losing 0.5shares if you have 100mil shares). The end result is that the major shareholder will end up slightly ahead after 1 issue.
For CMP's case, it is still ALRIGHT because the ratio is 20:1 (1 bonus share for 20shares), rather than a weird looking ratio like 7:1 (1 bonus share for 7 shares) which will create more fractional give-ups compared to the former.
It is a fact, but the impact should be minimum, and negligible, IMO. It is not a recurring very quarter, but one time after years.
IMO, bonus issue, is paying existing shareholders with equity, rather than paying full in cash. In theory, nothing changes, but the company has invited existing shareholders to participate the company growth story. The same approach as its M&A's strategy
(02-03-2015, 09:24 AM)weijian Wrote: [ -> ]Finally, it would be interesting to observe whether the tax issue that Webb site brought up earlier (link found here: http://webb-site.com/articles/minsheng.asp) would be applicable for CMP's bonus issue here or not.
(not vested)
Very interesting point. Distribution from retained earning in Singapore is tax free, but it may be complicated with China tax system. A topic worth further investigation...
(vested, thus concern)
CMP is a Singapore domiciled company with subsidiaries incorporated in HK/China. Hence, it is highly unlikely to be directly affected by Chinese taxation rules unless the China based subsidiaries effect a bonus issue.
GG
I did a more indepth study and seems you are right. Bonus issues effected via a transfer from 'retained earnings' to 'share capital' is similar to paying dividends out of 'retained earnings'. If the beneficiary (parent company) is a NRE (Non-Resident Enterprise), a 10% withholding tax applies. In CMP's case, it shouldnt be affected since the bonus issue is at parent level (Spore incorporated), not subsidiary level (china incorporated).
Closed strongly at $1.10 thus making a new all time high. A dividend yield of 6.36% backed by solid (and growing) cash generation while repaying substantial debt regularly. The low gearing gives substantial headroom for new M&A. Let's see how this goes.
(Vested)