Impression on Second Board:
During the financial crisis on 1997, many investors had suffered severe losses in stock investing, especially in investing in the Second Board counters. Many Second Board counters lost over 90% of their share price and therefore, investors who were caught by the massive loss had developed a fear towards Second Board.
Chart 1: AHB - 7315: Chart from 23/08/100 to 21/08/1998.
Chart 2: Farmbes – 9776：Chart from 26/06/1996 to 30/06/1998.
Chart 3: Tanamas – 7382：Chart from 8/01/1997 to 11/08/1998.
As shown on Chart 1, 2, and 3, these are counters that have relatively smaller capital, thus a target of speculation. During the market peak at the end of 1996 to beginning of 1997, many Second Board counter started falling, with losses more than 90%. When a stock price fall 90%, it require to rebound 900% in order to break even, in other words, for those investors who were holding on to their losses, breaking even is almost impossible.
Meanwhile, counters will smaller paid-up capital as well as weaker fundamental are gathered in Second Board. After the massive erosion of the 97 Asian Financial Crisis, many investors had learned to avoid Second Board counters, and as a result, the liquidity and volume of many Second Board counters reduced significantly. Therefore, these low liquidity counters are usually being filtered out by investors who apply technical analysis.
Pearls in Second Board:
Despite the negative impression that investors have on the Second Board, there are still some counters which has good fundamental listed in the Second Board, due to their relatively smaller paid-up capital. However, most investors had ignored these quality counters.
| Financial Year-end | Revenue '000 | Earning Per Share (sen) | Dividend (sen) | Dividend Yield (%) |
| 2009, January | 82,588 | 6 | 4.00 | 10.00% |
| 2008, January | 78,195 | 5 | 3.00 | 7.79% |
| 2007, January | 77,143 | 5 | 3.00 | 6.82% |
| 2006, January | 67,840 | 4 | 1.50 | 3.57% |
| 2005, January | 63,814 | 4 | 1.50 | 3.03% |
| 2004, January | 56,919 | 7 | 2.10 | 2.90% |
Table 1: CYL – 7157 Financial Summary.
| Financial Year-end | Revenue '000 | Earning Per Share (sen) | Dividend (sen) | Dividend Yield (%) |
| 2008, December | 185,361 | 19 | 5.00 | 7.14% |
| 2007, December | 159,681 | 11 | 0.00 | 0.00% |
| 2006, December | 152,346 | 7 | 3.00 | 4.62% |
| 2005, December | 155,866 | 4 | 5.00 | 7.25% |
| 2004, December | 149,952 | 10 | 6.00 | 7.59% |
| 2003, December | 138,138 | 7 | 5.00 | 5.41% |
| 2002, December | 158,598 | 8 | 5.00 | 5.21% |
Table 2：Khind - 7062 Financial Summary.
As shown on Table 1 and 2, CYL and KHIND had consistent earning as well as dividend payout, this shows that the company is doing fine in terms of earning, as well as they have sufficient cash in hand, these are usually a good sign of a fundamentally strong counter. Also, their dividend yield is 7% in average, and it is higher than many of the counters listed in Main Board. The high dividend is one of the favorite feature favor to long term investors. Due to their lack of liquidity, they are ignored by most investors.
Benefit of Merging:
Firstly, fund managers will select strong fundamental counters, and previously, due to some regulation, some fund managers were not able to include counters from Second Board into their portfolio, despite the strong fundamental, now that the Second Board is merging with the Main Board, this has lifted the regulation, and therefore, those counters which has strong fundamental will benefit most from this merging as fund managers will be buying them.
Another benefit of the merging is the elimination of fear of Second Board counters. This way, investors will no long select stocks based on the listing Board, but truly on its fundamental as well as technical aspect, especially to new investors.
The above factors will improve the liquidity of good fundamental Second Board counters and eventually, improve its reliability of chart. Refer to Chart 4 and 5.
Chart 4: Kossan – 7153，Chart from 5/07/2002 to 26/03/2004.
Chart 4 shows that Kossan changed from the Second Board to Main Board in August 2003. Notice how the volume has already increased 1 month before the change of listing board, and when it was listed on Main Board, the liquidity and volume has improved significantly.
Chart 5: KNM – 7164，chart from 6/01/2005 to 30/09/2005
As shown on chart 5, KNM changed from Second Board to Main Board in May 2005. After listed on Main Board, its volume and liquidity improved and until now, it is frequently one of the most active counters in the market.
Negative effect of the Merging:
Although there are benefits of the merging, there is one negative effect. When the Second Board merged with the Main Board, investors are exposed to more counters which has poor liquidity as well as poor fundamental. Therefore, this has inevitably increased some risk in selecting stocks, especially inexperienced investors.
Choosing a Good Second Board counter:
Selecting good Second Board counter should begin with the fundamental. Look for counters which has consistent earning and preferably with regular dividend paid out. These counters are generally doing well in terms of earning, and if they could pay dividend on a regular basis, it implies that their debts are very well under controlled, and they have sufficient cash in hand. Therefore, these are the quality of a stock that long term investors are looking for. Study Chart 6 and Chart 7.
Chart 6: Rhythm – 7032 Quarterly Financial Summary. Chart 6 shows that this company has been making losses, consistently since 2005, and investors should avoid this kind of companies.
Chart 7: CYL Quarterly Financial Summary. As shown on Chart 7, CYL has been making consistent profit, and regular dividend payout. This kind of counters are usually the first choice of fund managers.
Despite the importance of Fundamental, it is still incomplete to just pick stock with fundamental. Investors should also consider if the volume and liquidity is sufficient for it is very difficult to trade a low liquid stocks, or investors would have to pay a much higher price to obtain sufficient shares. Therefore, the best pick is still a counter with good fundamental and good liquidity.
Conclusion:
In conclusion, for those Second Board counters which have good fundamental, the merging will definitely be beneficial, and it is likely to improve the liquidity, and eventually more potential. However, as for those Second Board counters with poor fundamental, they shall remain unchanged. There are over 1000 counters listed in Bursa Malaysia, and investors should have a reliable system or method picking counter, using Fundamental analysis to select potential counters and apply technical analysis to fine tune the trading timing.
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