Challenger Technologies

(21-02-2011, 08:36 PM)dydx Wrote: Challenger shareholders should be very, very pleased with the just released FY10 (ended 31Dec10) full-year results and proposed 1-for-2 bonus issue announcements.....
http://info.sgx.com/webcoranncatth.nsf/V...E0032CA94/$file/SGXNET-31Dec2010final.pdf?openelement [FY10 results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...E0034424A/$file/Announcement-Proposed_Bonus_Issue_Final_20110221.pdf?openelement [Bonus issue announcement]
http://info.sgx.com/webcoranncatth.nsf/V...E0037C100/$file/CHALLENGER_Press_Release_FY2010v3.pdf?openelement [News release]

It is important to note that the bonus shares will be entitled to the declared $0.011/share Final dividend - i.e. in effect, Challenger has raised the FY10 Final dividend to the equivalent of $0.0165/share before adjusting for the bonus issue (vs. a $0.013/share Final dividend for FY09 paid).

With such good results and rewards, I guess many Challenger shareholders may be jumping high-and-low with joy or popping a bottle of champagne!

Hi dydx,

I think you meant the bonus shares will not be entitled to the dividends.

2. TERMS OF THE PROPOSED BONUS SHARE ISSUE
The actual number of Bonus Shares (as defined below) to be issued by the Company will depend on the total issued share capital of the Company as at books closure date to be announced (the “Books Closure Date”). Based on the existing issued and paid-up share capital of the Company comprising 230,138,658 Shares as at the date of this announcement, up to 115,069,329 new Shares (the “Bonus Shares”) will be issued
pursuant to the Proposed Bonus Share Issue.

The Directors have agreed to issue and allot the Bonus Shares at nil consideration without capitalisation of the Company’s reserves.
The Bonus Shares will be issued at no cost to entitled shareholders without capitalisation of the Company’s reserves, and when allotted and issued, will rank pari passu in all respects with the existing issued Shares and with each other, except that the Bonus Shares will not be entitled to any dividends, rights, allotments or other distributions before the record date which falls before the date of issue of the Bonus Shares.

1st para of p3 (re-produced in full below) of the news release clearly mentions that the bonus shares - if the proposed bonus issue is approved by SGX-ST - will be entitled to the proposed $0.011/share Final dividend (subject to shareholders' approval in the coming AGM), which will be payable on 31May11.

"To reward shareholders for their unwavering support, the Company has proposed a final tax-exempt dividend of 1.1 cents per ordinary share for FY2010. This, together with the interim dividend of 1.2 cents per ordinary share paid for 1H FY2010, gives a total of 2.3 cents per ordinary share for the full year ended 31 December 2010. The Company is also proposing a bonus share issue to its shareholders on the basis of one bonus share for every two existing ordinary shares held by shareholders, subject to the approval of SGX-ST. If approved and allotted, the bonus shares will also be entitled to the proposed final dividend of 1.1 cents per ordinary share."

I think it is reasonable to assume in this case SGX-ST will grant its approval on the proposed bonus issue as a matter of course.

DYDX, Good result, i do like this company due to its ability to sell its merchandise at a good profit margin..cables, accessories, games, softwares, external hard disks, humdrive etc ... Giving them higher profit margin and occupy less space on the retail shop than big ticket items but honestly i do not buy IT products from them as i am a value seeker :-)

indeed is a great piece of news to me as a shareholder and I also havent sold any shares to-date yet. I was just discussiong with colleagues during lunch today about challenger's recent spike in its stock price..
(now vested at 0.147 before bonus adjustment, effectively enjoying 19.4% div yield after taking account into both the final and the interim dividends)

The way I read it, it's just the phrasing which makes it confusing. Let me put it this way:-

The company intends to pay 1.1c per share final dividend. In addition, it will issue 1 bonus share for every 2 shares held. The bonus shares are also entitled to the dividend.

2 shares X 1.1c = 2.2c of cash dividend + 1 bonus share.
1 bonus share x 1.1c = 1.1c of cash dividend

Therefore, total dividend from holding 2 shares = 3.3c. Dividend per share is thus 1.65c per share.

So why can't Challenger just do away with the bonus issue and declare a final dividend of 1.65c per share on its current issued share capital?

Well, I guess it's because it sounds all the more exciting and celebratory when a bonus issue is involved, even though, in effect, there is no change in the market cap of the company and has no effects on current shareholders other than to split 2 shares into 3 and enlarge the issued share capital base.

Just my 2-cents. Not vested.

MW: i think the bonus issues are new share allocation. The reason is explained in their press rls and report that they would like to increase share capital and liquidity.

(21-02-2011, 11:33 PM)Musicwhiz Wrote: Well, I guess it's because it sounds all the more exciting and celebratory when a bonus issue is involved, even though, in effect, there is no change in the market cap of the company and has no effects on current shareholders other than to split 2 shares into 3 and enlarge the issued share capital base.

A well-conceived and attractively priced bonus issue - like the one proposed by Challenger - can be an effective catalyst event to guide the share price and market cap. upwards towards its justified fair value, and may even help to overshoot it temporarily sometimes. Discounting market speculation, whether this actually happens will depend very much on whether the stock counter is being underpriced by Mr Market by a big enough margin in the first place. If the underlying business is of high-quality and has strong fundamentals including a good potential for further business and profit growth, then Mr Market's motivation to re-price the stock will be even higher. A bonus issue leading to more shares going into the free-float should normally help facilitate a market re-pricing process.

Results are indeed gratifying and market has responded positively to the proposed corporate actions. Pertinent question is whether Challenger can grow further henceforth.

I would encourage potential investors to visit some of the numerous stores, talk to the sales staff, and simply observe consumers' behaviour. Vist some of Challenger's competitors as well and see where the competitive advantage comes in. Try to also rationalise whether, despite competitive pressures, the demand for and the variety of IT products will continue to increase for the foreseeable future. Many a time, the scuttlebug approach would reveal a great deal of the dynamics of the underlying business and industry..

(22-02-2011, 09:43 AM)dydx Wrote: A well-conceived and attractively priced bonus issue - like the one proposed by Challenger - can be an effective catalyst event to guide the share price and market cap. upwards towards its justified fair value, and may even help to overshoot it temporarily sometimes. Discounting market speculation, whether this actually happens will depend very much on whether the stock counter is being underpriced by Mr Market by a big enough margin in the first place. If the underlying business is of high-quality and has strong fundamentals including a good potential for further business and profit growth, then Mr Market's motivation to re-price the stock will be even higher. A bonus issue leading to more shares going into the free-float should normally help facilitate a market re-pricing process.

Don't get me wrong - I was not implying anything about Challenger's business. In fact I think it is a very well-run business and the numbers and results attest to that.

If, as you say, the bonus issue's aim is to prompt Mr. Market to re-rate the stock price as a result of raised valuations, then I guess this probably will be achieved. Though I still maintain that as a shareholder, your primary aim is to enjoy many years of growth in the business, as well as regular cash dividends. Whether or not Mr. Market re-rates the business should be of no consequence - unless, of course, you intend to sell your stake to him. Otherwise, most of the time shareholders can forget about his mood swings and simply focus on the business.

Cheers!

(22-02-2011, 11:58 AM)Musicwhiz Wrote: Though I still maintain that as a shareholder, your primary aim is to enjoy many years of growth in the business, as well as regular cash dividends. Whether or not Mr. Market re-rates the business should be of no consequence - unless, of course, you intend to sell your stake to him. Otherwise, most of the time shareholders can forget about his mood swings and simply focus on the business.

Having bought their shares, most investors of quoted stocks would like and welcome that Mr Market could value their stocks close to the justified intrinsic values, at least over time. This is a desirable aim and objective, regardless of whether an investor would change or turn to become a seller or not. While the management of a listed company should focus their attention and efforts towards growing the business and profits, it is a well accepted expectation and market norm that management should reward the shareholders and create shareholders' value, including taking appropriate actions/decisions to enhance the market value of the stock.

I believe Challenger's CEO Loo and BOD are doing just that. While Loo and other directors who are also large shareholders have not sold any of their shares so far, a higher share price should make them feel good and proud - at least as a positive confirmation from investors and the stock market that matches the financial success of the underlying business.