Hidden hands behind penny stock surge

FROM THE EDGETOP STORIES

Edge Weekly

Special Report: Hidden hands behind penny stock surge

The Edge Malaysia

September 30, 2020 18:00 pm +08

This article first appeared in The Edge Malaysia Weekly, on September 21, 2020 - September 27, 2020.

ASTUTE market observers would have noticed on the local bourse a group of individuals, supposedly acting in concert, who have amassed shares in more than 20 publicly traded companies. These companies — linked via shareholding and directorships — are often on the most actively traded list, with huge, fluctuating share prices.

“It (the companies) is all linked to the same person; usually, the most actively traded list on a daily basis involves these counters,” one source says when asked which are the companies that are linked.

However, research by The Edge (see chart on the 21 companies) indicates that while other businessmen have surfaced, the individual said to be in control of the group of companies is not officially onboard or present as a shareholder.

“This [his not surfacing] could be due to several issues,” another source adds.

It is also telling that nine of the 21 companies mentioned — AT Systemization Bhd, MLabs Systems Bhd, Focus Dynamics Group Bhd, mTouche Technology Bhd, Fintec Global Bhd, XOX Bhd, M3Technologies (Asia) Bhd and NetX Holdings Bhd — have their principal place of business, head office, business office or corporate office in Menara Lien Hoe, near Tropicana Golf Country Resort in Petaling Jaya. On its website, Lambo Group Bhd states that its address is at Menara Lien Hoe, even though the address in its annual report is in Old Klang Road in Kuala Lumpur.

In 2006, Lien Hoe Corp Bhd sold Lien Hoe Tower Sdn Bhd, which owns Menara Lien Hoe, to privately held E-Globalfocus Sdn Bhd for RM1 and the assumption of RM43 million in debts.

Meanwhile, E-Globalfocus was 68%-controlled by Cubes Innovative Sdn Bhd, a company 99%-controlled by Chuah Hock Soon. Chuah and businessman Datuk Kenneth Vun @ Vun Yun Lun were charged with four others in July 2014 for allegedly manipulating DVM Technology Bhd shares in March 2006.

Vun has had several issues with the Securities Commission Malaysia and, in 2009, had to restitute RM2.496 million — being the amount of company funds that he had caused to be misused for his personal benefit, according to the regulator — to his then flagship FTEC Resources Bhd.

Since FTEC — which morphed into Tecasia Bhd and later Mangotone Bhd — was delisted, Vun has had little direct presence in the market. However, Vun’s two sisters, Carol Vun On Nei and Grace Vun Siaw Nei, hold stakes of 3.64% and 0.67% respectively in Xidelang Holdings Ltd.

Fragmented shareholding

While Fintec Global seems to be a prominent company at the centre of the maze, its shareholding is fragmented, with several blocks of shares parked under Sanston Financial Group Ltd. In several of the 21 companies on the list, Sanston Financial is present in the shareholding list.

Other companies that surface as shareholders in these list of companies include Global Prime Partners Ltd and Cita Realiti Sdn Bhd, a private company wholly-owned by one Kamarudin Khalil.

Other shareholders, albeit usually holding small stakes, among the 21 companies include Datuk Jacky Pang Chow Huat — who, apart from a 11.84% stake in Sanichi Technology Bhd — has small stakes in DGB Asia Bhd, Focus Dynamics, MNC Wireless Bhd and Xidelang. Pang is also a director in Sanichi Technology.

Meanwhile, businessman Mak Siew Wei has 23.4% in AT Systemization, 17.07% in Green Ocean Corp Bhd and small stakes in Focus Dynamics and Xidelang. He is also a director at AT Systemization, Green Ocean and Saudee Group Bhd.

Datuk Eddie Chai Woon Chet recently acquired a 62.37% stake in restaurant operator Oversea Enterprise Bhd, and has a 6.71% shareholding in Anzo Holdings Bhd, where he is managing director and has a board position in M3Technologies (Asia). Another name frequently seen is Datuk Kua Khai Shyuan, who, besides a 5.9% stake in mTouche Technology, has small shareholdings in Focus Dynamics, PDZ Holdings Bhd and Sanichi Technology, and has board seats on Trive Property Bhd, DGB Asia and MNC Wireless.

Former Umno treasurer and former Bank Simpanan Nasional Bhd chairman Datuk Abdul Azim Mohd Zabidi surfaces as a director in four of the companies — Fintec Global, DGB Asia, Anzo and XOX.

Most of the companies are loss-making and small in terms of market capitalisation, with the exception of Focus Dynamics, which has a market value exceeding RM5 billion. Nevertheless, Focus Dynamics, which is involved in operating food and beverage outlets, seems to be the star performer, with its stock price hitting a multiple-year high of RM2.64 recently on Sept 17, despite mustering a meagre RM3.08 million in net profit from RM20.72 million in revenue for its six months ended June this year.

Year to date, Focus Dynamics stock has gained about 400%.

Irrational exuberance

Trading volume on most of the 21 companies is generally high, and many have shown unexplainable strong gains over the past few months.

For instance, Saudee’s stock hit a low of eight sen on March 17, and picked up momentum in June to hit a 52-week high of 67 sen on Aug 13, gaining more than 300%.

For its nine months ended April this year, Saudee, whose mainstay is in frozen food and poultry, suffered a net loss of RM27.78 million from RM57.61 million in revenue.

Last Friday, Saudee closed at 48 sen, translating into a market capitalisation of RM77.3 million.

If you are impressed with Saudee’s gains, Anzo — a loss-making company that has a business in timber products — gained more than 1,000% from mid-May to hit a high of 26 sen in July.

Anzo closed at 11.5 sen last Friday, giving it a market capitalization of RM102.7 million.

There are several companies on the list that have shown similar patterns.

XOX, which is involved in cellular telecommunication services, gained more than 430% from mid-July to hit a high of 39.5 sen at end-August. In mid-March this year, XOX was trading at one sen. The stock closed last Friday at 19.5 sen, translating into a market value of RM562.8 million.

Ailing shipping company PDZ’s stock was trading at one sen in mid-March, but at end-June, it gained more than 500% to 32.5 sen in mid-July. For a company mired in law suits and a significant dearth of shipping assets, PDZ’s meteoric rise is surprising to many. PDZ ended last Friday at 10 sen, giving it a value of RM89.4 million.

Similarly, Sanichi Technology, which is in precision moulding, saw a sudden surge in trading volume at end-May, with its stock spiking more than 150% to hit a high of 12.5 sen on June 2, after which it tapered off.

While the peaks may be enticing to punters, the change in fortune, with counters falling to their troughs, can be a deterrent. mTouche Technology, which has a wireless network and mobile messaging business, saw its stock crash from a high of 20.5 sen on Feb 20 this year to a low of 5.5 sen on May 12.

DGB Asia, a tracking solutions company, was trading at 19.5 sen in the early part of November last year, but by mid-March, it had shed most of its value to close at 1.5 sen on March 19.

It is also noteworthy that companies such as Water Beaute World Bhd and WBW Global Sdn Bhd, have 1.02% and 0.42% respectively in Trive Property. These two companies were involved in get-rich-quick and fake online investment schemes.

Both these companies were reported in the past to have stakes in XOX, while WBW Global also had a substantial stake in Anzo Holdings.

Anatomy of stock market scams

Anatomy of stock market scams

By M. SHANMUGAM

THE ALTERNATIVE VIEW

Saturday, 03 Oct 2020

For now, the music appears to have stopped on Bursa Malaysia. Daily trading volume has come down to less than five billion shares compared to the average of 10 billion transacted in the months of July, August and September.

TWO months ago, this column wrote about how retailers were hooked to the stock market and that many would get their fingers burnt when the party ended.

For now, the music appears to have stopped on Bursa Malaysia. Daily trading volume has come down to less than five billion shares compared to the average of 10 billion transacted in the months of July, August and September.

In the first week of August, trading volume went as high as 27 billion, with retailers being the bulk of buyers.

The buying frenzy was on the back of Bursa being a beneficiary of the Covid-19 pandemic due to it having the largest listed producers of nitrile gloves in the world.

Those who bought into glove stocks would have probably cashed out with a hefty profit. A good many who went into other healthcare-related stocks are probably licking their wounds, hoping to recoup their money or at least minimise their losses if there is a rebound.

The buying frenzy extended beyond glove stocks into almost anything that had to do with Covid-19. Initially the play was on companies venturing into production of Covid-19 related products such as masks, personal protective equipment (PPE) and hand sanitisers.

The margins on these products are thin and there are no barriers to entries, meaning the profits are small. But the play on the stock price was huge.

Then came the vaccine theme and the latest is the air travel theme with companies offering a complete solution for those wanting to travel in and outside the country. In the midst of the several themes related to the pandemic, share prices of unknown names went through the roof and came down with a heavy thud.

For investors, there are several lessons to be learnt from the Covid-19 rally.

Firstly, the old truth about buying on rumours and selling on news remains very relevant. If a particular stock price is running on speculation accompanied by heavy trading volume, there probably is not much upside left. It’s a signal that the speculation is well known and many are chasing the stock.

The price will almost certainly come down and can retrace up to 50% when the news comes out. These days, the exchange does not wait for the company to make an announcement. It sends the company a query and, from the replies, one will be able to ascertain if there is truth to the speculation.

Secondly, one should be careful trading stocks whose ownership is through a myriad of cross holdings. A cross holding is when two or more listed companies own significant blocks of shares in another listed company. A myriad of cross holding usually leads to problems.

When one of the companies gets into trouble, the other companies also come under heavy selling pressure.

For instance, Ooi Cheing Sim, the substantial shareholder of ATTA Global Bhd and Heng Huat Resources Bhd, was arrested by police for investigations into drug-related activities in February this year. Ooi was a substantial shareholder in several other companies that he owned directly or through other listed companies. All the stocks came under selling pressure.

There are several groupings of companies on Bursa Malaysia with cross holdings and common shareholders. These companies also tend to have have common directors.

Fintec Global, for instance, owns several listed companies directly and indirectly through listed and unlisted entities. Some directors in Fintec Global also sit on board of other companies such as XOX Bhd, PDZ Holdings Bhd and Anzo Holdings Bhd.

A common pattern is the myriad or cross holdings that link one company to another.

There is a reason why some individuals control listed companies through cross holding structures. It reduces the holding cost. For instance, when Fintec Global buys a stake in another listed company, it forks out the money. But the major shareholders of Fintec Global control the new listed company indirectly.

Thirdly, one must look out for companies raising money through share placements, especially if the proceeds are to be used as working capital or to repay loans. The smaller the amount raised through a placement, the higher the scrutiny it warrants.

It is normal for companies to issue new shares to raise money to fund an acquisition.

The better managed companies have their substantial shareholders taking up some of the new shares as a show of commitment.

However, if the bulk goes towards working capital, there is no end to the company issuing more shares in future. Also nobody really knows what the working capital is used for.

Sometimes, it can also be used to buy shares in other companies or support the share price.

Also, if the bulk is used to repay loans, there is also a possibility of the company taking up more loans again. So, why risk taking up a stake in such companies?

Finally, one must look at the euphoric share price rise of companies with warrants.

Sometimes, the share price rises significantly to the extent that there is a healthy discount to the warrants. Investors get sucked into buying the warrants on the assumption that they can convert to the underlying shares and sell within 10 market days.

However, the run on the underlying share lasts for less than 10 market days i.e. two weeks. Before the holders of the warrants can see through the conversion exercise, the share price of the mother share comes tumbling down.

There are a few examples of such cases. Last year, DWL Resources Bhd, now known as KTG Bhd, saw a euphoric rise of the shares with the entry of new shareholders.

The jump in share price kept up for a few days, causing a huge discount to the warrants.

The warrants were trading at less than 60 sen each while the underlying mother share was more than RM2.

The conversion for the warrants was only 60 sen. But investors who bought the warrants ended up suffering huge losses when the underlying mother shares came crashing down within days.

An active market with healthy trading volume is good.

It attracts retail investors and gives investors a sense of feel good. But one has to watch out for the traps and the pitfalls.

The views expressed here are solely that of the writer’s.

TAGS / KEYWORDS:

Bursa Malaysia , Shares , Trading , Scams , M. Shanmugam , The Alternative View ,

Gift of Money

Thank you Lord for Your gift of money.

You give me insight to see the market

with unclouded eyes.

Your voice tells me when to enter a trade.

Your voice tells me when to exit a trade.

Your presence is like the morning dew

watering my soul.

Amen