Let me clarify first,
this article is written based on the company shares that I bought for the past 7 years.
There are more than thousand public listed companies at Malaysia,
and I only invested around 10-20 companies,
plus I invested based on fundamental,
so I might be able to cover everything perfectly.
For all these years,
I think the most important factor for a share price to rise is the GROWTH of PROFIT.
AEONCR profit grew a lot for the pass two years,
so the share price also rose from around RM11 to now around RM13,
and don't forget that the current RM13 is the share price after Bonus Issue,
so actually it rose from RM11 to around RM20.
(See, that's why I don't like Bonus Issue, need to explain more....)
Of course,
there are a lot other companies that the share price skyrocketed with the growth of profit,
I took AEONCR as my example is because it is one of the company that I am investing now.
Okay,
I think many people are starting to get bored,
since again it is about growth of profit then rising share price,
the same old topic...............
So now I would like to discuss deeper,
because in this few years,
there are some companies that didn't have amazing growth of profit,
but the share price rose amazingly!
Personally,
except growth of profit,
I think there are 3 more factors that will help the rise of company share price.
First,
is the rise of PE.
Last time EPS=RM2.50, PE=30, so the share price was around RM75.
Now EPS=RM2.50, PE=40, and the share price rose to around RM100.
Even though the company didn't grow much at profit,
but all the investors changed their views about the same company,
and willing to look at it with higher PE.
One of the obvious example is F&N.
Few years ago I bought F&N at around RM16,
now is around RM28,
but actually the profit didn't grow that much.
So why did the share price rose so much comparing with the profit?
Maybe it is because the company did restructuring to save cost,
and have clearer planning to future operation,
so all the investors willing to look at F&N with higher PE.
Not only F&N,
the most recent example is NESTLE which the share price rose from around RM70 to above RM100.
If take a look at the financial report of NESTLE,
there is not much growth of profit,
but the share price was able to rise drastically in a short time to break through RM100.
So what happened?
This is because NESTLE is listed into the MSCI Index, so the share price rose to above RM100.
No changes happened at the company,
but because it is listed at MSCI Index,
so all the investors willing to look at NESTLE with higher PE.
Is actually quite hard for me to find this kind of company to invest.
I am not GOD, I will know when the investors will suddenly change their views regarding a certain company,
just like NESTLE,
I had no clue that NESTLE will be listed at MSCI Index beforehand.
Even though the investors willing to change their views and look at certain company with higher PE,
sometimes,
they might lower the PE also.
Yes, this is based on my personal experience with AEONCR.
Few years ago,
AEONCR grew very fast,
so the investors willing to look at it with PE above 15.
Then suddenly,
the growth suddenly decreased at a quarter, plus the factor of Ringgit value dropping and rising NPL,
3 negative factors,
all the investors suddenly changed their views at AEONCR,
and they looked at it with PE below 10,
so the share price dropped from RM19 to around RM11 !! (before Bonus Issue)
Even though I sold some at between RM14 to RM16, but some of my paper profits still flew away.....
However,
because of that,
I also had the chance to accumulate a lot more shares at price between RM11 to RM12.
(Of course the price is before 2:1 Bonus Issue.)
Second,
the increment of dividends.
Of course,
if a company earned more money, usually will be more willling to distribute more dividends.
What I wanted to point out here are those companies that the increase of dividends are more than the growth of profit.
For example, profit grew by 20% but dividend increased by 50%.
Or the changes of dividend payout ratio,
last time only distribute 20% of profit,
but now changed to distribute 40% of profit as dividend.
DLADY and HUPSENG are the two best examples of large increment in dividends,
as the result,
the share prices of both companies also rose drastically!
If want to search for this kind of company,
first we need to see the ratio of current dividend to the profit.
If the company already distributing 80% or above of the profit as dividend,
then this factor cannot be applied.
Instead,
we can look for those companies that only distribute a portion of the profit as dividend,
because the companies need capital for future investment and expansion.
Then at the future when companies do not need so much capital for expansion,
then maybe the dividend payout ratio will rise.
Of course,
we need to make sure that the company really needed expansion capital,
and not because the boss is selfish, doesn't want to share money with shareholders....
Eventually,
the dividend will increases, but will decreases as well.
PANAMY which I investing distributed large portion of profit as dividend for few years,
then suddenly the dividend payout ratio dropped a lot,
and so did the share price.............
Third,
some sudden good news.
For example like Bonus Issue or take over news.
Usually when the good news are announced,
the share price will rise.
The most recent examples are LPI which declared Bonus Issue and OLDTOWN which going to be taken over by Dutch company.
However here comes the question again,
I am not insider of the company, and I am not GOD,
so I couldn't know all these news beforehand, same like the changes of PE.
Since good news will trigger the share price to rise,
eventually bad news will cause the share price do drop.
Maybe important management people having some health issues,
or the the factory is flooded or fire happened,
all these bad news will cause the share price to drop.
No matter how,
I think the most important thing for us is to invest at GOOD COMPANY.
The profits of good companies will grow, so as the share prices.
Investors willing to look at good companies with higher PE, so the share prices will rise.
Good companies will distribute more and more dividends, so the share prices rise too.
Some good companies will declare Bonus Issue, and the share prices will rise.
That's why I only invested at good companies.
Investment is about doing own thinking, making own decision.
Thanks for reading.
I don't provide any buying/selling suggestion above,
please make your own investment decision and be responsible with it.
