After a two-year hiatus, companies have resumed offering bonus shares to shareholders who stayed invested with them through the global financial crisis.

During the crisis, it did not serve any purpose to offer bonus shares. It’s only in a market where there is at least a bullish undertone that share prices perk up when bonus shares are offered. That sentiment is vital because, theoretically, the value of the shares does not increase with a bonus issue.
Bonus issues reduce share prices that have climbed, making them  appear more affordable to investors to buy.

Current conditions are ripe for the issue of bonus shares. Share prices have doubled or tripled in many instances and retained earnings have been rebuilt on current record profits by companies which emerged stronger from the crisis.

Companies that have announced bonus issues include CIMB Group Holdings Bhd, Hai-O Enterprise Bhd, Mah Sing Group Bhd, KPJ Healthcare Bhd, KKB Engineering Bhd, Oriental Holdings Bhd and Supermax Corp Bhd.

CIMB recently announced a one-for-one bonus issue after it released its results of a record net profit of RM2.8 billion last year.  It stated that improving tradability of its shares is one of the objectives of the bonus  issue. The reason for that is obvious as its share price has doubled over the last one year to RM13.58.

Rubber glove maker Supermax has a similar reason for its bonus issue as its share price has risen almost 700% to RM6.17 from 81 sen a year ago. As its bonus is one for four, not one for one, the objective is more to reward shareholders who stayed with the company through thick and thin than to reduce its share price.

Glove makers, including Supermax, have a history of offering bonus issues whenever they have built up reserves. Supermax, for instance, made bonus issues in 2003 and 2006 and a stock split in 2007.

Top Glove Corp Bhd, which is expected to release a strong set of 2Q results next week, might also propose a bonus issue this year. Its share price has increased more than 150% to RM11.58 over the past year.  Other glove companies may follow suit with bonus issues.

Direct selling group Hai-O Enterprise Bhd’s combination of a bonus issue and a share split has been particularly well received by investors. Its share price has crossed RM10 as it heads towards the entitlement date of March 16.  It is also scheduled to announce its 3Q results this month.

Sarawak-based engineering and construction group KKB Engineering also proposed a combination of a bonus issue and a share split that has been well received. The stock frequently appears among top gainers. The company is also poised for large construction projects in that state.

Hospital group KPJ is also regularly among the top gainers on Bursa Malaysia. While that is powered by its consistently rising earnings, the stock obtained second wind from its package of bonus issue and stock split.

KPJ went a step further — it offered an issue of free warrants. With the leverage they offer, warrants are popular with retail investors, especially free warrants or if issued at a nominal price.

While warrants offer a bigger bang for your buck, they are not popular with many fund managers, possibly because they may not have mandates to own derivatives.

KPJ, along with related companies Kulim (M) Bhd, KFC Holdings (M) Bhd and QSR Brands Bhd, is reclaiming holding company Johor Corp’s reputation that it is affirmative in its actions to promote the interests of shareholders.

Property developer Mah Sing has proposed a bonus issue as well, and  has also gained a reputation for being attentive to the interests of its shareholders. It’s not surprising then that its shares have a higher valuation compared with that of many other developers.

Oriental Holdings last week joined the string of companies offering bonus issues. It would be able to do so from time to time in view of its very large reserves, possibly with special dividends too.

Although the group lost its sole distributorship for Honda cars, it continues to be highly cash-generative, thanks to the expansion of its plantation division, which is currently its most profitable.

Oriental has gross cash of over RM2 billion and relatively low borrowings, and is well positioned to make strategic acquisitions related to its core businesses.

At the end of last year and in the run-up to the Chinese New Year, employees got their bonuses.  Now, shareholders are being given theirs.

This article appeared in Corporate page, The Edge Malaysia, Issue 796, Mar 8-14, 2010.