Uncommon leapfrogs of weak companies

Mahfuz Emran: Fu-Wang Food has never paid a dividend of more than 2 percent in the last four years. The shares were stuck at the floor price (minimum price) day after day as there were no buyers. That company’s share price has soared recently. The share price almost doubled in just 10 working days.
Last July 2, the price of each share of the company was Tk 23.50. From there, the price increased by leaps and bounds. After trading on July 16, the price of each share stood at Tk 43.50. That is, within half a month, the company’s share price increased by 85 percent.
In other words, if an investor buys Tk 10 lakh shares of the company on July 2, he gets a profit of Tk 8 lakh 51 thousand if he sells that share on July 16. This is like a money making machine!
Not only Fu-Wang Food, but a number of weaker companies have seen their shares soar recently. Another such company is Khan Brothers PP Oven Bag. Last June 12, the share price of this company was Tk 13.80. From there, it increased by leaps and bounds and stood at Tk 38.90 at the end of the transaction on July 18.
That is, the company’s share price increased by 182 percent in a little over a month. In other words, an investor bought Tk 10 lakh shares of the company on June 12, and sold those shares on July 18 for a profit of Tk 18 lakh 18 thousand. That is, the invested money has almost tripled in just one month.
The company last paid out a 2 percent cash dividend to investors in the year ended June 30, 2022, with the share price soaring. Prior to that, it did not pay any dividend in 2021. And 2 percent cash dividend in
2020 and 2018. No dividend paid in 2019. That is, the dividend history of the company is not very good.
Khulna Printing and Packaging has not paid any dividend to investors after 2020 after falling into losses. As per the latest published financial report, the company is in losses. The company posted a loss of 11 paise per share in the six months from July to December 2022.
The share price of this company has recently increased at an unusual rate. On June 6, each share of the company was priced at Tk 9.40. From there, the price increased to 15 taka 20 paisa at the end of the transaction on July 19. In other words, the company’s share price increased by 62 percent in one and a half months.
The Dhaka Stock Exchange (DSE) authorities themselves say that such increase in the price of shares of these companies is unusual. For this reason, DSE has also issued a warning warning investors. Even so, the trend of rising share prices of the companies could not be stopped.
However, after the abnormal price increase, the price has come down at some point. On the last working day i.e. on July 20, the share prices of all these three companies fell. Among them, the price of Fu-Wang Food has decreased by 8.68 percent, Khulna Printing and Packaging by 6.58 percent and Khan Brothers PP Oven Bag by 2.70 percent.
Earlier, the share prices of Emerald Oil, Legacy Footwear, Heidelberg Cement, Orion Infusion, Sea Pearl Beach Resort, Gemini Sea Food, Rupali Life Insurance, ADN Telecom, Pragti Life Insurance, Dhaka Insurance, Apex Footwear, Apex Food, National Tea and other companies increased at an abnormal rate.
The biggest surprise among them is the weak financial capacity of the company Emerald Oil. The share price of the company increased from Tk 30.80 to Tk 182.50. That is, the company’s share price increases by 493 percent. After this unusual price increase, the prices have been corrected slightly but now the prices are seen to rise again. The share price has gained 9 percent in the last two working days.
The company has declared an interim dividend of 5 per cent to investors (excluding entrepreneurs and directors) based on the last financial report till March 31, 2023. It has also declared 2 percent cash dividend to general investors excluding entrepreneurs and directors for the year ended June 30, 2022.
Basically, the share price of the company increases so abnormally based on this dividend announcement. Before that, the company fell into losses and did not pay any dividends to investors from 2017 to 2021.
In this way, even if the share price of one weak company increases, it is stuck at the floor price for months or the fundamental or blue chip companies are hovering around the floor price. Apart from strong financial position, these companies are not able to attract investors despite paying attractive dividends every year. The condition of these institutions is like hibernation.
Even if the stock prices of blue chip or fundamental companies remain at the same place, stock market analysts are not taking well the jumps in the share prices of weak companies. They say, there is no normal investment environment in the market. Real investors are largely passive. A few investors are creating artificial crises in the market and driving up the share prices of weak companies.
They say that the rate at which the share prices of some weak companies have increased recently shows that there is a special cycle behind the price increase. There is no way that a company’s share price can suddenly double or triple without the role of a special cycle.
They also say that these gangs have become quite reckless recently and have abnormally increased the share prices of some companies. But the regulatory body doesn’t seem to be taking any drastic action against them. Rather, floor prices (minimum prices) set by regulators are further aiding this cycle. The manipulation cycle has become reckless in the market. Now the increase or decrease in the price of any share in the market is indicated by this cycle.
A member of DSE said that the stock market is now being run by special cycles. This cycle is increasing the share price of each company at a time. As the shares of good companies are not traded for a long time, ordinary investors are also investing in fraudulent shares. All of this is due to the floor price. If the floor price is removed, the manipulation in the market will be reduced to some extent. Then many investment options will arise. But because of the floor price, only a few companies are playing now. This is destroying the normal market environment.
Share market analyst Professor Abu Ahmed told Daily Industry that the share market is now running with gamblers. Gamblers are creating demand in the market. Due to demand creation, emerald oil has increased from Tk 33 to Tk 180. Who did it? They (the gamblers) did it. The stock market is not running normally, it is an abnormal market. This market is running with gamblers.
He said, everything is due to the floor price. Dr. Farasuddin is from Awami League, he also said against the floor price. Bangladesh Securities and Exchange Commission (BSEC) should be asked when the floor price will be raised. One should question what the BSEC has to say about gamblers driving up share prices of weak companies, excluding bluechips. If I were the regulator, I would have raised the floor price in one day.
He further said that the situation now seems that they (regulators) favor the manipulators. The real disease of the stock market is the floor price. Lifting the floor price will fix everything. Investors will flock to bluechips. Chairman of BSEC has said – floor price has been given for the benefit of investors. How is the investor’s capital protected? No one can sell. Sitting with Bluechip. Is it a market?
On the one hand share prices of weaker companies are rising, on the other hand share prices of bluechip companies are stuck around the floor price or floor price. How do you see the market situation? When asked such a question, former chairman of BSEC Farooq Ahmed Siddiqui told, if there is a floor price in the market for a year, then can the market have a normal environment? Now what is happening is junk shares are being bought and sold and they are being manipulated in various ways. And the good shares have been closed for a long time, due to floor prices.
He said, the shares of some companies are doubling, tripling, it is due to manipulation. The manipulation cycle is further facilitated by the floor price. It is not a market. Where good companies remain closed for a year.
BSEC Executive Director and Spokesperson Mohammad Rezaul Karim told Daily Industry, “We have kept a watch on the junk shares whose prices have increased recently. The commission always keeps a watchful eye on whether any shares are being manipulated or not. Necessary action will be taken through investigation if the manipulation is reported. Dhaka Stock Exchange (DSE) has already been ordered to investigate Khan Brothers PP oven bags. Actions will be taken as per the law after receiving the investigation report.
Is there any new plan with floor price? When asked such a question, he said that the chairman’s statement is that the floor price will remain until the health of the market returns. The floor price is not permanent, but will be adjusted by the commission in future based on market conditions. In the current scenario, no new decision has been taken regarding the floor price.