KUALA LUMPUR (May 21): The Minority Shareholder Watchdog Group (MWSG) has raised its eyebrow over ES Ceramics Technology Bhd’s move to undertake a long-term incentive plan (LTIP), which may see around 30% of its share capital awarded to eligible persons and could dilute the earnings per share (EPS) and net assets per share for the existing shareholders.

“The proposed LTIP of up to 30% of the total number of issued shares of ES Ceramics is rather large compared to the norm in the local capital market,” MSWG said in its latest weekly newsletter today.

“Shareholders may understand the need to retain talents via share grants and options, but there will be significant dilution in earnings per share (EPS) and net assets per share for the existing shareholders,” it added.

On May 16, ES Ceramics shareholders had voted and approved the proposal to establish a LTIP of up to 30% of the total number of shares issued, which is intended to reward the non-executive directors. The proposal was advised and facilitated by UOB Kay Hian Securities (M) Sdn Bhd.

According to MSWG, ES Ceramics directors have acquired 21.2 million shares, equivalent to 10.3% of the total shares, from the secondary market on May 15, a day prior to the extraordinary general meeting to approve the LTIP.

“The substantial acquisition of the company’s shares by the insiders may send a signal to shareholders and investors that the company’s performance could be at the verge of turning around,” MSWG added.

To this, MSWG said the proposed LTIP could be issued at the expense of shareholders if the new shares are issued at a low price, especially since the share price of the company has corrected to a lower bound range recently.

ES Ceramics share price has declined more than 60% from its peak of 63 sen in 2016, to the current price of around 20 sen to 22 sen, it added.

Meanwhile, MSWG said it does not encourage the practice of giving share grants and options to non-executive directors as they play the important governance role in the company and are responsible for monitoring the share grants and options allocation to the employees and the executive directors.

“The granting of share grants to independent directors may result in them becoming shareholders and this increases the potential for conflicts of interests in that they may become focused on the share price at the expense of financial reporting integrity,” it added.

ES Ceramics shares were untraded this morning. The stock was last closed at 21.5 sen, valuing it at a market capitalisation of RM44.19 million.