Friday, 9 December 2011

HaiO Buys Itself

I notice that HaiO has been busy buying back its own shares since end of March this year. Recently the share buyback is carried out in almost daily basis. Is share buyback good for investors?

Share buyback or share repurchase refers to a company buying its own share from the stock market, either through open market or tender offer. It means that the company actually invest in itself. The shares that have been bought back are usually kept as treasury shares.

A company carry out share repurchase for a few reasons:
  • When it feels the company is undervalued in the market
  • To reduce the outstanding shares in the market, thus increasing existing shares value
  • To reduce the threat of company being taken over by others
When the number of outstanding shares is reduced, then earning per share (EPS), dividend per share etc will increase. This is good for the shareholders as the value of their shares increase with each share repurchased.

Treasury shares (treasury stock in US) have no dividend nor voting rights. Some companies will create some treasury shares upon listing so that it can raise fund easily in the future. The treasury shares can be either cancelled (retired), sold or used for employee share scheme.

For HaiO, its share price has tumbled from about RM4.50 to RM1.78 for the past one and half year. From the period of 29 Mac 2011 to 8 Dec 2011, HaiO has bought back 650,700 shares from open market, to increase its treasury shares from 2,544,688 to 3,195,388.

HaiO's net profit drops by 60% for FY2011 and it seems to have stabilized. I am not sure how well its network marketing is doing now. If it is improving, then the company's earning should improve as well.

HaiO is going to announce its FY2012Q2 results soon. Can it make a U-turn from here?

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