A Personal Finance Blog for Malaysian: Why "Bonus Issue" drives share price up?

Tuesday, November 1, 2011

Why "Bonus Issue" drives share price up?

I am referring to RSAWIT (5113), Plantation Company.

The company announced to Bursa the Bonus Issue entitlement date on 28th October 2011, where the ex-date will be on 9th November 2011.

Share price (closing) on 27.10.2011 (before announcement) RM1.19
Share price (closing) on 31.10.2011 (after announcement)    RM1.43

There are no fundamental changes, just announcement of entitlement date, where the bonus issue has been announced months ago.

So, it is proven that the "Fundamental" does not affect the share price but it is the "Emotion" of the investor pushing it up beyond the reasonable level.

What is Bonus Issue?

Bonus Issue is an offer of free additional shares to existing shareholders. Share price before bonus, says RM1.40 will be adjusted to RM0.70 per share after the bonus issue. But the value of shares will be remain the same as 1,000 shares x RM1.40 = 2,000 shares x RM0.70.
Therefore, there are no value creation because the value of share will be remained the same before and after the bonus shares being listed.

Conclusion, share market react to "emotion" but on long term, it comes back to fundamental.