K-Star: TDR listing beneficial

The management of K-Star Sports Ltd is still puzzled by the big plunge in its share price as it soared to a record high only to tumble to its lowest ever in just a matter of one week.

“We are surprised with the selling on K-Star shares. We are not aware of any corporate development that will affect the share price movement, other than the proposed TDR (Taiwan Depository Receipts) programme that we had announced to the stock exchange,” K-Star’s chief financial officer Lim Yeow Eng told The Edge Financial Daily over a phone interview.

“We don’t want to speculate what the reason is behind the selldown,” he commented when asked about the heavy selling of K-Star shares recently.

Lim said the proposed TDR programme should be positive news to the company.

“Most companies’ share prices go up when they announce their plan to undertake the TDR programme,” he said. Lim also reiterated that the company’s operation was intact and was performing up to expectations.

The China-based sports shoemaker had on Nov 27 unveiled a proposal to seek a second listing in Taiwan. It is the second company on Bursa Malaysia to do this after XingQuan International Sports Holdings Ltd. K-Star intends to float 100 million shares, equivalent to 29.24% of its enlarged share capital, comprising 75.6 million new shares and 24.4 million existing shares, on the Taiwan Stock Exchange via the proposed TDR programme.

In Singapore, there are a growing number of companies seeking dual listing in Taiwan via the TDR programme, for instance Super Group Ltd, United Envirotech Ltd, Yangzijiang Shipbuilding (Holdings) Ltd and Osim International Ltd, the latest to jump on the bandwagon.

Share prices of these companies rallied after announcing the TDR listing. For instance, instant coffee manufacturer Super Group’s share price soared 40% after announcing its TDR programme.
Similarly, news on the dual listing exercise lifted United Envirotech’s share price by over 60%. Usually there is a price disparity between the shares that are listed in Taiwan and Singapore. Shares in Taiwan tend to trade higher than those listed in Singapore.

Lim said the proposed TDR programme is a positive move as the company could raise fresh capital for expansion at lower costs.

However, there have been concerns over shareholding and earnings dilution since K-Star will issue 75.6 million new shares, which are equivalent to 28.4% of its existing issued share capital, compared with XingQuan’s 15%. On this, Lim said with the new capital, raised at lower costs, would be invested to expand K-Star’s operations to enhance the company’s earnings in the future.

The latest results announcement showed that K-Star’s net profit rose 27% to RM14.3 million for 3QFY10 ended Sept 30 from RM11.3 million a year ago. Revenue grew 25% to RM88.36 million against RM70.4 million. For the nine-month period ended Sept 30, its accumulated net profit amounted to RM30.3 million or 0.39 sen per share compared with RM29.9 million or 0.5 sen per share previously.

Lim added that the dual listing in Taiwan would also help to increase the liquidity of the stock and raise the company’s profile and its brand name further. K-Star’s share price surged to a record intra-day high of RM1.21 on Nov 30 but the stock succumbed to intense selling, subsequently plunging to end at 45.5 sen last Friday — the lowest close since its debut on Bursa.

Trading volume surged to 27 million shares last Thursday. Over the last three trading days, some 70 million shares or 26.3% of K-Star’s issued capital changed hands.

According to Lim, the moratorium which was applicable to 83% of the company’s shareholding expired last Saturday. K-Star International Ltd is the major shareholder controlling a 58.4% equity stake. Some pre-initial public offering (IPO) investors hold the remaining 24%.

“The moratorium (on K-Star shares) is one of the highest on Bursa Malaysia,” said Lim.

However, under the proposed dual listing scheme, pre-IPO shareholders who have held shares in the company for over 12 months could sell part of their stakes via the TDR programme in Taiwan.

Among the pre-IPO shareholders who can dispose their shares in Taiwan are Skylitech Resources Sdn Bhd, A1 Capital Sdn Bhd (former Golden Eagle Resources Sdn Bhd), Yap Son On and Fortune United Investment Ltd. - by Kathy Fong