This article first appeared in The Edge Malaysia Weekly on November 8, 2021 - November 14, 2021

On Oct 25, ACE Market-listed industrial automation house Genetec Technology Bhd announced that it was proposing to undertake a bonus issue of up to 661.56 million new shares on the basis of 12 bonus shares for every one share held.

Given the fact that Genetec’s share price has jumped 27-fold since the beginning of the year — from RM1.80 on Jan 4 to RM48.44 last Friday — it is arguably a sensible move for the company to undertake the exercise to broaden its share base, improve trading liquidity and encourage investor participation.

A company is allowed to determine what bonus issue ratio is deemed best.

And to be fair, as Genetec undertook a 10-into-1 share consolidation in 2016, it may make sense for the company to now re-enlarge its share base.

Even so, its proposed ratio of 12-for-1 — significantly higher than most similar corporate exercises — has not escaped Corporate Malaysia’s notice.

For perspective, Genetec’s share base will be expanded from 51.68 million shares currently to as many as 716.695 million shares.

Based on the five-day volume weighted average price (VWAP) and the lowest three-month daily VWAP of Genetec shares up to Oct 15, the theoretical ex-bonus price (TEBP) of Genetec shares is expected to be between RM1.32 and RM3.28.

After the shares have gone ex, investors must be mindful that while the share price looks a lot cheaper, it is not necessarily so. Simply put, if you were to buy Genetec shares at the TEBP of RM3.28, you would actually be buying the shares at RM42.64, based on the current level.

And remember, Genetec’s earnings per share and net asset value per share will be heavily diluted following the completion of the corporate exercise.

Still, it is not overly uncommon for companies to undertake massive bonus issue exercises, as there have been even bigger ones than Genetec’s, including Kluang Rubber Co (M) Bhd’s 29-for-1, Inch Kenneth Kajang Rubber PLC’s 50-for-1, Sungei Bagan Rubber Co (M) Bhd’s 31-for-1 — all three undertaken in 2005 — and Kuchai Development Bhd’s 45-for-1 in 2006.

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