This article first appeared in The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021

Last Thursday, Bursa Malaysia rightly rejected Focus Dynamics Group Bhd’s proposal for a one-to-three share split. The company had undertaken a share split only last October.

In a stock exchange filing, the Ace Market-listed company said the share split was rejected as it would have resulted in its share price, which was 4.5 sen on July 29 — already low by most investors’ standards — being adjusted to 1.5 sen.

Share splits can be a good thing. Companies do it so they can lower the trading price of their stock to a more affordable level, thus making it accessible to more investors. This, in turn, increases its liquidity.

In the case of Focus Dynamics, why undertake a share split when its share price is already so low? Were there other reasons for it wanting to push through another share split so soon after completing one?

The company, which is in the F&B, entertainment and lifestyle businesses, completed a one-to-three share split last October. At the time, which was during the height of the penny stock fever, its share price peaked at RM2.65 days before the stock split. Since the split, however, trading has been lacklustre.

Interestingly, had Bursa approved the latest split, it would have raised Focus Dynamics’ issued shares to between 18.45 billion and 33.6 billion, from 6.15 billion as at end-2020. For comparison, the country’s most valuable stock, Malayan Banking Bhd, has 11.69 billion issued shares.

Investors should be wary whenever companies propose stock splits and check not only when one was last done but also if there are good reasons for it.

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