IN THE current penny stock rally, interestingly, there are big-name investors who increased their stakes in small caps to significant levels.
In particular, we are talking about 2 companies that not only are small-caps but face the threat of having to de-list without an exit offer – JEL Corporation and Plastoform Holdings.
Is this some high-risk, high-return bet on these companies?
* JEL Corporation (stock price 0.6 cent, market cap S$11.9 million):
Last week, Koh Boon Hwee‘s stake shot up from 12.5 million shares (3.16% stake) to 296. 4 million (15.0% stake) following a rights issue.
He subscribed for not only his rights entitlement but also applied for excess rights.
In an illustrious career, Mr Koh was, for 15 years, the Chairman of the Singapore Telecom Group (SingTel) and its predecessor organizations.
He also held the post of chairman of Singapore Airlines. More recently, he was Chairman of DBS, until 2010.
Similarly, another well-known shareholder, Sam Goi, raised his stake from 10.5% To 15.0% following the rights issue.
Sam Goi is a billionaire who appeared in No. 12 position on Forbes’ list of Singapore’s wealthiest people. He is Executive Chairman of Tee Yih Jia Group, and known as the Popiah King.
Mr Goi and Mr Koh became shareholders of JEL in early 2007, just months before JEL's sharp downfall owing to accounting fraud.
Its then-chairman-cum-CEO Eric Tan has been convicted and jailed for 12 months and fined $280,000.
He had founded the company and grown it as a trader and distributor of photographic equipment and accessories and fast-moving consumer goods in Third World markets such as Cambodia and Africa.
By subscribing for the rights issue last week, Mr Goi and Mr Koh may be viewed as giving a vote of confidence in the company’s prospects, although JEL had warned its shareholders during the rights issue that:
“Should the Company be unable to meet the requirements of Rule 1314 of the Listing Manual by 2 March 2012, the SGX-ST may either remove the Company from its Official List, or suspend trading of the Shares with a view to removing the Company from its Official List.”
Given the fragility of the future of JEL (including the risk of being delisted without an exit offer), it was not unexpected that the subscription rate of the rights issue was only 27.5%.
Are insiders more confident and knowledgeable about the prospects? Or were they just averaging down on their initial purchase prices (which were many multiples of the current stock price)?
It’s relevant to note that the CEO (since 2007), Gilbert Ee, had undertaken to subscribe for all the excess rights shares not taken up by shareholders. (See conditions and other details of the rights issue in the official circular.)
If that had materialized, he would have to cough up $5 million – and his stake would have zoomed up from 0.1% to 80%. As it turned out, his stake now stands at 32.58%.
Within days, all three – Koh Boon Hwee, Sam Goi and Gilbert Ee – have seen significant paper profits on their newly invested money.
They had paid 0.35 cent a share for each rights share, while the stock last closed at 0.6 cent, which is a 71% gain for them and all subscribers to the rights shares.
JEL, which is barely profitable, has since used the $5.3 million in net proceeds from the rights issue and $2.7 million from its operating cashflow to repay all its outstanding debt.
* Plastoform Holdings (stock price 2.6 cent, market cap S$35.2 million):
Over three days in January and February this year, Ang Kong Hua made purchases of 601,000, 478,000 and 267,000 Plastoform shares.
His stake now stands at 26.4 million shares, or 7.79% of the issued share capital.
The bulk of it – 25 million shares – were purchased in July last year from a controlling shareholder.
Mr Ang was formerly Chairman of Singapore Telecommunications and the Securities Industry Council. For 28 years, he was President of NatSteel.
Like JEL, Plastoform is on the watchlist of the SGX and faces the threat of being delisted (without an exit offer).
Plastoform appears to be getting a new lease of life: For the 4th quarter of 2011, the company's revenue was HKD 151.1 million compared with HKD 96.6 million a year ago.
Net profit was HKD 17.7 million compared with loss of HKD 12.5 million a year ago.
The change in fortune was due to the launch of integrated Bluetooth wireless speakers which generated higher sales from September 2011 and orders from a well-known global PC accessory brand and distributor; and strong sales of a new line of speakers modelled after popular gaming characters.
Like JEL earlier, Plastoform is currently embarking on a rights issue, to raise up to S$15.4 million. Read the official circular.
Comments
Plastoform is now at 3 cents, a major 15% gain for those who bought at the time of the above article.