InnoTek shares have done very well in recent months, which could make an interesting case study on how to keep shareholders, especially minority shareholders, very happy (instead of fuming at a stock that is consistently underperforming vis-a-vis its business growth fundamentals) .
The InnoTek formula: buy back shares, and pay out a big hongbao of a dividend while generating strong cashflow from the business.
As of yesterday, InnoTek had bought back 6,605,000 shares since announcing its FY09 results in late February. (It had bought another 10,061,000 shares prior to Dec 2008)
InnoTek’s stock price has risen from around 41 cents when the company resumed buying its shares in late February this year to close at 59 cents yesterday – a matter of just six weeks.
The stock has been buoyed also by the company’s guidance for a strong 1Q and FY10 business performance.
What’s more, following its 5-cent a share dividend payout for FY 08, it has now proposed a 5-cent dividend for FY09, and said it could sustain a similar payout going forward.
All these were sufficient to get us to attend a presentation during the lunch break yesterday at CIMB-GK Investment Centre by InnoTek’s managing director, Yong Kok Hoon.
It was full house, which is 100 over people, including a few value investors whom I got to know after the event. A few of the Q&As centred on InnoTek's share buy back:
Mr Yong: The share buyback limit is 10% of the paid-up share capital. We are allowed to buy up to about 23 million shares.
Recently, we saw that the share price was pretty attractive – our net asset value is about 86 cents a share while our share price earlier traded at about 40 cents.
Our cash balance on hand is about 50 cents a share. Cash in the bank earns less than half a percent in interest, so even if the share price is $1, our 5-cent dividend is 5% yield. It makes a lot of sense to us to buy back the shares.
Q How much have you bought?
Mr Yong: We have bought about 7.1% (which is 16,666,000 shares).
We stick strictly to the share buyback rule of buying at not more than 5% of the average closing price of the preceding 5 market days. That’s why you see we are not chasing the share, otherwise we would have bought a lot more earlier.
Q What do you intend to do with the shares you have bought back?
Mr Yong: We are exploring acquisition opportunities and we could use the shares as cash for the acquisition.
Q You mentioned M&A. Could you give details?
Mr Yong: We are looking ….At any point in time, we have a few proposals. An acquistion could be of a business at a slightly higher end of metal stamping, which would bring us up higher on the value chain.
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