4 important conclusions about the local market regarding bonus issues

There are possibly four important conclusions about the local market regarding bonus issues.

1.  A large number of bonuses are not made for financial reasons.
2.  There is strong evidence for the existence of either insider trading or insider inspired trading prior to bonus announcement.
3.  Local investors/speculators do chase after bonuses.
4.  There is strong evidence of heavy selling after bonus announcements have been made. 

What this means in plain terms is that the typical investor who buys the stocks of a company undergoing bonus issue either just before (by basing his purchase on rumours) or just after the announcement of a bonus almost certainly ends up losing money on a relative basis.  That is, had he bought other shares, he certainly would have done better. 

This is totally unlike the US situation where buying the stocks after their splits would result in the investors being even with the market.

The only way to make money from bonuses locally is to be able to buy well before the bonus announcement (about 20 weeks before) and sell almost immediately after the announcement.  In that way, you would stand to make a lot of money.  But to do so consistently, you would need inside information on when a bonus issue is about to be announced. 

Ref:  Stock Market Investment by Neoh Soon Kean

Type : Announcement

Subject : KPJ HEALTHCARE BERHAD (“KPJ” or “COMPANY”)

- PROPOSALS

Contents : This announcement is dated 1 October 2009.

On behalf of the Board of Directors of KPJ (“Board”), AmInvestment Bank Berhad (a member of AmInvestment Bank Group) (“AmInvestment Bank”) wishes to announce that the Company proposes to undertake the following proposals:-

Proposed share split involving the subdivision of every existing one (1) ordinary share of RM1.00 each in KPJ into two (2) ordinary shares of RM0.50 each (“Shares”) in KPJ held by the entitled shareholders of the Company on an entitlement date to be determined and announced later (“Proposed Share Split”);

Proposed bonus issue of up to 105,525,308 new Shares (“Bonus Shares”), to be credited as fully-paid up by the Company, on the basis of one (1) Bonus Share for every four (4) Shares held by the entitled shareholders of the Company after the Proposed Share Split on an entitlement date to be determined and announced later (“Proposed Bonus Issue”); and

Proposed issue of up to 131,906,635 free warrants in KPJ (“Free Warrants”) on the basis of one (1) Free Warrant for every four (4) Shares held by the entitled shareholders of the Company after the Proposed Share Split and Proposed Bonus Issue on an entitlement date to be determined and announced later (“Proposed Free Warrants Issue”).

The Proposed Share Split, Proposed Bonus Issue and Proposed Free Warrants Issue shall collectively be referred to as “Proposals”. The Proposals are inter-conditional.

Kindly refer to the attachment for further details.