THE public are finally beginning to realize their significant role as investors in listed stocks. They are now forming themselves into individual groups for the common purpose of analyzing what they refer to as undervalued listed stocks before investing in them.
What they are doing is good for them. Analyzing individual stocks and their earnings potential is the most cautious way of investing in an unpredictable market. Kudos to the public.
In earlier Due Diligencer pieces, I wrote about the group of Rommel Ablin who, I understand, is based somewhere in the Middle East. He and 216 public investors are now united like Karl’s. The only differ-ence is that the latter prefers his nickname as I had used it many Due Diligencers ago. Recently, I heard again from “Karl”. I welcome his email as I did a few other communications that I received from the public.
Like other emailers, however, I cannot always accommodate him because I need to provide other readers of The Manila Times the information they need on certain stocks that I choose for my own presentation.
Here is Karl’s contribution on Due Diligencer’s take on Phoenix Semiconductor Philippines Corp. (PSPC), which was also a recent topic in this space:
“When PSPC undertook an initial public offering (IPO), it made the following disclosures:
“1. The IPO proceeds will help expand PSPC’s manufacturing plant in Clark to cater to customers out-side their premier client Samsung;
“2. Samsung’s six-year contract will end in 2017;
“3. Samsung is constructing a 31-million square feet colossal semiconductor manufacturing factory complex in Pyeongtak City in Korea and should create 150,000 jobs. This project will cost Samsung $14 billion and will be finished in 2017;
“From the IPO, PSPC raised P1.023 billion of fresh funds. Three months later, it gave out a fat dividend of $0.0054 (At an exchange rate of P44.63 to $1.00 in March 2015, that is P0.24 per share);
“At the P3.15 IPO price, the dividend was equivalent to a yield of 7.6 percent (not bad given the low interest rate). The payout cost the company $11.7 million or P522.17 million.
“Isn’t it ironic for a company to get funds to expand a plant, only to give out more than 50 percent of the proceeds to stockholders? (From your previous articles, the lucky ones are the majority share-holders). In the case of STS, it got P443.85 million due its 85 percent ownership. It will be laughing their way back to Korea.” (Note: STS refers to STS Semiconductor and Telecommunications Co. Ltd. of Ko-rea.)
In conclusion, Karl posed the following questions to PSPC management:
1. Do you have any idea or are you aware of any plan that before the IPO, the Samsung group might not renew its contract with PSPC in 2017 because of its new plant which is under construction?
2. What will happen (to PSPC) without the Samsung contract when most of your machines are tailor-made to cater Samsung’s needs?
3. What happened to the expansion? Why is there an infinite delay?
4. Why give out more than half of the IPO proceeds?
5. Is the fat dividend just a bait?
Interesting, isn’t it? Finally, the public are becoming activist stockholders by questioning the manage-ment about the use of corporate funds, particularly the proceeds from an IPO.
Karl scored a good point in directly dealing with PSPC management but should have also informed Se-curities and Exchange Commission (SEC) officials about his predicament. After all, the SEC is the chief securities regulatory agency which has the power to check on the stock market and listed stocks.
If Karl’s claim is true that PSPC used IPO proceeds to pay cash dividends, it is only proper for both SEC and PSE officials to look into it. After all, he belongs to the public and without the public, family-owned and controlled businesses cannot save on expenses incurred in issuing shares to themselves.
Listed stocks pay one-half of one percent of the amount of transactions while non-listed companies pay 25 percent.
Did PSPC divert its IPO proceeds to pay cash dividend? If true, this is a serious violation of the SEC rules on the sale of shares to the public. However, let us give the company the benefit of the doubt. Unless the SEC intervenes, the public would never know the veracity of Karl’s claim.