Penguin International

[Nuthing03]

Para 2.2 of the announcement states shares will be rounded down to the nearest whole Consolidated Share and any fractions of Consolidated Shares arising from the Proposed Share Consolidation will be disregarded. It is perhaps not a coincidence why Penguin decided for a share consolidation for 3:1 when Mr Jeffrey holds 120,000,649 shares (AR14). 2:1 and 4:1 does not do him any benefit. Hopes it will be a 2:1 share consolidation instead whereby the current share price adjusted for share consolidation still have sufficient margin above the minimum traded price.

Btw, is the directors abstained from voting in this resolution?

Edit: Sry for any confusion caused. Look like Mr jeffrey is going to have odd lot share even if it is 2:1,3:1,4:1.

I am not sure if Jeffery, having 120 million shares, is so concern with odd lots that the company have to consolidate it at 3:1 ratio.

I am more concern that the company have to resort to shares consolidation to meet the MTP requirement. Luckily it is just a 3:1, and not 5:1 or 10:1.

Not sure if you understand what I am saying.

I supposed that there isn't much alternatives to meet the MTP. 1. Share consolidation 2. Seek a transfer to Catalist
Most coy will use the first method so the next question will be what ratio should the coy propose when doing the share consolidation. It will be in the interest of everyone to do a ratio whereby it avoids a fractional entitlement of shares to most members.Thus, 5:1 and 4:1 ratio will be proposed. The result will be a huge reduction in liquidity and investors will have to take that into consideration in valuation. 2:1 ratio is hardly proposed since the margin might not be enough and the coy have to do another share consolidation if it drops below 20 cents.

Correct me if anything is wrong..

[weijian]

whichever fraction is been used, everyone will be impacted but the extent is different. The mathematics for a share consolidation is not too different from a bonus share/rights issue in which odd numbers create fractions that impact everyone, but of course, the impact is proportional based on ur holdings.

Lets imagine a situation of 1000 shares in total where a major shareholder owns 910shares (91%) with 9 OPMIs each owning 10shares (1%).

One fine day, Mr Major shareholder asks for a share consolidation od 3 to 1 (similar to this situation) with fractions disregarded by rounding down to the nearest integer. His 910shares will become 303shares, while each OPMI becomes 3 shares now. the total number is now 303 + 9*3 = 330shares.

Post consolidation, Mr Major shareholder owns 303/330 = 91.8% while each OPMI owns 0.9% now. There is a magical increase for Mr Major while poor Mr OPMIs owns less now.

The above example clearly shows who are on the losing and winning side, who stands to win the most and lose the most. In investing, it is never equal playground for OPMIs.

[Ben]

2:1 ratio is hardly proposed since the margin might not be enough and the coy have to do another share consolidation if it drops below 20 cents.

I am glad you see this. Penguin is doing a 3:1, and not 5:1 or 10:1, which they probably thinks that 3:1 is enough for them, going forward, to maintain the MTP requirement.

These days, it happen to many companies doing say a 10:1 consolidation and thus thinking they have a comfortable margin post consolidation. But post consolidation, their share price starts to fall again, some quite substantially. Many minority shareholders suffered as a result.

Let's hope this is not the case for Penguin.

[weijian]

This is funny. If Mgt does a 10:1, someone will come out n explain that Mgt is conservative and wants a big margin of safety and put this MTP once and for all to rest, so that they can start to focus on creating value again...The wonders of HALO EFFECTs..

We r irrational, so that is why we will observe that once share price consolidates, it falls further again especially when there r no other observable effects (post consolidated prices help to remove some anchoring of past prices and frames a new set of conditions). Post consolidation prices may also fall again because the bid ask spread (or trading costs) have effectively reduced again, reducing the barrier to sell..

Regardless of which situation, as long as it falls again with NO changes in business reality, or the price fall doesnt justify the business deteoriation, it is the job of the RATIONAL investor to take advantage of the situation and not be overly distracted or worried about share price drops due to 10:1 consolidations. Such distractions or worries are only meant for part timers (or those who think they r serious investors).

[CityFarmer]

This is funny. If Mgt does a 10:1, someone will come out n explain that Mgt is conservative and wants a big margin of safety and put this MTP once and for all to rest, so that they can start to focus on creating value again...The wonders of HALO EFFECTs..

We r irrational, so that is why we will observe that once share price consolidates, it falls further again especially when there r no other observable effects (post consolidated prices help to remove some anchoring of past prices and frames a new set of conditions). Post consolidation prices may also fall again because the bid ask spread (or trading costs) have effectively reduced again, reducing the barrier to sell..

Regardless of which situation, as long as it falls again with NO changes in business reality, or the price fall doesnt justify the business deteoriation, it is the job of the RATIONAL investor to take advantage of the situation and not be overly distracted or worried about share price drops due to 10:1 consolidations. Such distractions or worries are only meant for part timers (or those who think they r serious investors).

The share consolidation, comes with a cost. The cost isn't coming from short-term price volatility, but on the long-term liquidity.

Current outstanding shares is about 660 mil shares, 3 into 1 means 220 mil shares, and 10 into 1 means 66 mil shares.

The cost of 3x lower liquidity, is significant, which might deter even small institutional investors.

I am in favor of keeping the cost minimum i.e. meeting the MTP with comfortable margin, while keeping the consolidation ratio as low as possible. Good work from the management

(vested)

[weijian]

If the company and business is right, i will love low liquidity of shares. A great business with low share liquidity is a wonderful thing in the LONG term! - The simple laws of supply (no. of avail shares) and demand (how much money is waiting) in a buy situation.

With changes min lot size and scb no min cost trading (although it does have its dis advantages), i will argue that this 'long term liquidity' thing is over rated.

[CityFarmer]

If the company and business is right, i will love low liquidity of shares. A great business with low share liquidity is a wonderful thing in the LONG term! - The simple laws of supply (no. of avail shares) and demand (how much money is waiting) in a buy situation.

With changes min lot size and scb no min cost trading (although it does have its dis advantages), i will argue that this 'long term liquidity' thing is over rated.

I love low liquidity too, as private investor, because I have no liquidity issue to worry about, as long as adhere to the basic principle of value investing i.e. invest only with fund that you don't need in short-term.

For fund managers, with redemption issue to worry about. Rationally, they need to match the liquidity of their funds to their assets.

For listed company management, a healthy share of institutional investors is important for price stability. Otherwise, the volatility of the share price, might mirror with recent China stock market indexes ;-)

[weijian]

This is funny again. When one invest, the factors are your position size (that u r putting into the particular company wrt to your entire portfolio) and the outstanding free float (market cap of shares not owned by major shareholder/s), and NOT the share price. Unless it is at its extremes (eg. small prices that are close to the bid ask spread or high prices where the min lot is a tall order for the average guy), liquidity is never a function of the share price and any irrational behavior deviation from that should be viewed as an opportunity, rather than a threat.

[CY09]

Agree on the above, but do not agree on the statement of affordability. This is because in penguin context, it is unlikely that a consolidation of 10 to 1 will make it out of reach to the masses. Since lots are now sold in 100 shares.

[Thaddy0103]

Agree on the above, but do not agree on the statement of affordability. This is because in penguin context, it is unlikely that a consolidation of 10 to 1 will make it out of reach to the masses. Since lots are now sold in 100 shares.

Don't mind if I input on this statement
While it true for lot size being available thru 100s' tranche the factor we cannot exclude is brokerage fees since there alway is a minimum fee being charge.
I chance upon quite a few articles that recommend small-time investors to save up and buy in bulk on the counter they are interested in to spread the cost of their investment.

Taking Penguin as a example post consolidation their share price will be around $0.41
Market minimum brokerage fee is $18-$25,let juz average it to $20 inclusive of SGX clearing fee.
If buy in 100 lot=$41+20=$61-cost of each share will be $0.61
If buy in 1000 lot=$410+20=$430 cost of each share is $0.43

Technically,I think the minor concern most vested VBs' should be whether what they are holding will be rounded to odds share of less then 100 as this will need your broker to sell through their system incurring higher broker fees of close to double then if they could do it themselves.otherwise I'm of the same view as CF that lower liquidity may not be such a bad thing after all for value investor.Liquidity is only a concern for short term speculator which I presume non here are.