Penny Stock: A once-in-two-decade penny stock fever

This article first appeared in Capital, The Edge Malaysia Weekly, on December 28, 2020 - January 10, 2021.
There is mounting concern that retail investors, particularly those who just started investing this year, may be badly burnt when the tide turns abruptly as the penny stock fever reaches new heights

There is mounting concern that retail investors, particularly those who just started investing this year, may be badly burnt when the tide turns abruptly as the penny stock fever reaches new heights

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IF 2020 is the year of rubber glove manufacturers and technology-related counters, penny stocks deserve at least a notable mention.

The penny stock fever on the local bourse has not been seen for at least 20 years since the dotcom bubble burst.

The eye-popping share price rally lured long-absent retail investors to the stock market and that, in turn, lifted the daily trading volume to a record high of 27.8 billion shares on Aug 11.

At the height of the penny stock fever in August, share prices hitting limit up were not a rare sight. On Aug 7, 12 stocks hit limit up, including HLT Global Bhd,  LKL International Bhd and ES Ceramics Technology Bhd. These three were below 20 at the start of 2020.

Most of these stocks were boosted by announcements on plans to diversify into personal protection equipment (PPE), mainly disposable rubber gloves or face masks, or that a memorandum of understanding had been signed with foreign pharmaceutical companies for the exclusive right to distribute a Covid-19 vaccine, although the government has yet to decide whether the private sector would be involved.

Some describe the Covid-19 pandemic as a blessing in disguise as retail investors had extra money in their pockets to invest as a result of the six-month loan moratorium granted by the banks, while the unprecedented global demand for PPE gave rise to wild expectations on the earnings potential of an investment in producing rubber gloves or raw materials such as nitrile.

Fintec Global Bhd’s elevated quarterly profits may help explain the market euphoria. The company, which owns stakes in several listed entities, reported a 905% year-on-year surge in net profit for the second quarter of its financial year ended Sept 30 (2QFY2021) to RM720.5 million, from RM71.7 million in the previous corresponding quarter.

Almost all of its business segments — green technology, oil and gas (O&G) and trading — posted pre-tax losses during the quarter, with the exception of its portfolio investment division.

Fintec recorded a “fair value gain on investment securities” of RM714.2 million — nearly 10 times the RM73.6 million it recorded a year earlier in 2QFY2020. On its balance sheet as at Sept 30, 2020, it had RM1.23 billion in investment securities, almost four times the RM358.1 million recorded six months earlier on March 31.

Fintec did not reveal the details of the investment portfolio as it is not required under Bursa Malaysia’s listing rules. However, based on the disclosure of companies’ shareholdings through its wholly-owned subsidiary Asiabio Capital Sdn Bhd, Fintec holds shares in Saudee Group Bhd, VSolar Group Bhd, Komarkcorp Bhd, Focus Dynamics Group Bhd, Seacera Group Bhd and AT Systematization Bhd — all penny stocks. In a nutshell, the large gains were due to the surge in the market values of its investments.

When sentiment was especially buoyant, even the share prices of bus operators Gets Global Bhd and Konsortium Transnasional Bhd — both of which have been loss-making for years — could more than double in a single day, with the daily trading volume exceeding their issued share capital. This means a portion of the companies’ shares changed hands more than once on a single trading day.

Gets Global is an outperformer among the penny stocks in terms of share price performance. The stock exchange queried the company on unusual market activity three times between August and November due to the steep climb in its share price, but this did not stop its spectacular rise. It may seem unbelievable that Gets Global’s share price skyrocketed from 10 sen to RM3.97 in less than four months.

The counter’s rally gained strength when it announced a rubber glove manufacturing venture. On top of that, two new substantial shareholders — ADA Capital Investments Ltd and Teong Lian Aik — emerged in the company after a share placement. ADA Capital is owned by Teong’s brother-in-law, Low Bok Tek.

AT Systematization, which has also ventured into the rubber glove manufacturing business, also stands out among the penny stocks. It is likely the most traded stock of 2020. Daily trading volume soared to 2.66 billion shares on Nov 10, accounting for 23% of the total volume of shares traded on Bursa Malaysia that day.

In the second week of November, AT Systematization’s weekly trading volume swelled to 10.85 billion shares, which was equivalent to slightly more than 16% of the total weekly volume on the stock exchange. This was the first time that many investors had witnessed such a large trading volume on a single stock.

The penny stock fever then spread to Vivocom Intl Holdings Bhd, whose share price skyrocketed 290% to RM1.95 in mid-November from 50 sen — two weeks after the completion of a share consolidation exercise. Interestingly, the company doesn’t intend to manufacture rubber gloves. However, it is acquiring a property development business from its controlling shareholder Datuk Seri Chia Kok Teong. While some quarters have questioned the rationale of venturing into property development given the soft property market, its share price continued to go higher.

This is the fourth asset injection for Vivocom, which was formerly known as Instacom Group Bhd, and whose core business then was telecommunications towers. The company made its debut in January 2005 under the name I-Power Bhd, an IT solutions provider founded by then CEO Jason Chia Kok Chin

Apart from rubber glove ventures, news of companies jumping on the vaccine distribution bandwagon also helped drive share prices to fresh peaks. These companies included Bintai Kinden Corp Bhd, Ho Wah Genting Bhd, Kanger International Bhd, K-Star Sports Ltd, Solution Group Bhd, Yong Tai Bhd and MyEG Services Bhd (see table).

Interestingly, none of them currently own a pharmaceutical business. The commitments to the new ventures mainly hinge on the memorandum of understanding that they signed.

Of these companies, Solution Group is the best performing counter, with its share price rocketing by 1,457% this year.

Bintai Kinden’s shares also attracted strong buying interest after it announced in August a potential partnership with US-based Generex Biotechnology Corp and its subsidiary NuGenerex Immuno-Oncology Inc. It signed a distribution and licensing agreement with the US firms in October for their Covid-19 vaccine. The agreement grants the group the exclusive right to distribute, sell and commercialise the vaccine in Southeast Asia.

Nonetheless, Bintai Kinden’s two largest shareholders — Bintai Holdings (M) Sdn Bhd and Nusankota Development Sdn Bhd — sold their shares even before the commencement of its vaccine distribution business. Nusankota, in fact, sold its entire 14.4% stake in Bintai Kinden.

Bintai Kinden’s share price, which had not risen above 20 sen over the past three years, started climbing in August and reached a peak of RM1.37 on Dec 7 before giving up most of its gains.

There is mounting concern that retail investors, particularly those who just started investing this year, may be badly burnt when the tide turns abruptly as the penny stock fever reaches new heights. These concerns aren’t baseless as such share price movements have already been seen in the roller-coaster ride of several penny stocks, including M3 Technology Bhd, K-Star Sports, Vivocom and Gets Global.

Moving forward, 2021 will be the year for these penny stocks to prove the sceptics wrong by delivering earnings from their new ventures.



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