ISR Capital and Best World among stocks offering hope in a dull market
The stock market operates in mysterious ways, very often
ignoring fundamentally sound stocks to the point that frustrated owners and
major shareholders are driven to consider a takeover, privatisation or
delisting, yet at the same time rewarding other stocks for reasons that the
market might struggle to pinpoint.
Comments
R Sivanithy
10 June 2016
The stock market operates in mysterious ways, very often ignoring fundamentally sound stocks to the point that frustrated owners and major shareholders are driven to consider a takeover, privatisation or delisting, yet at the same time rewarding other stocks for reasons that the market might struggle to pinpoint.
Given the present weak market, delisting examples abound, two recent cases of which are healthy-lifestyle products group OSIM International and traditional Chinese medicine group Eu Yan Sang International.
Less known, however, are the market's success stories, stocks which have enjoyed massive outperformance despite the prevailing soft equities climate. Two fine examples are investment firm ISR Capital, which is connected to an ongoing Commercial Affairs Department (CAD) investigation into the penny stock crash of 2013, and Best World International, which saw its stock more than triple in price in the past three months but came under severe pressure on Thursday.
Incredible jump
ISR's incredible jump from S$0.006 on May 10 to a high of S$0.117 on May 16 is the stuff of dreams for any investor, a gain of 1,850 per cent in just five trading days being performance that perhaps comes along only once in a lifetime.
Yet just as it is a mystery why sound companies are often ignored and are forced to exit the market, until today it is a mystery why ISR rose as it did - the company was queried by the Singapore Exchange (SGX) last month and its reply on May 12 was a masterclass in brevity - in response to the three questions posed by SGX, ISR simply said "No", "No" and "Yes", the former two in answer to questions on whether it knew why its shares were in play and the third to confirm compliance with the Listing Manual.
There was some speculation of a possible takeover because a substantial shareholder now holds close to the 30 per cent trigger point, but it's worth noting that ISR's external auditors on April 8 said in an "emphasis of matter" that because of the ongoing CAD probe, there existed a "material uncertainty" that might have an impact on the company's ongoing operations.
"Accordingly, the extent of adjustments, if any, that may arise from the ongoing investigations, may have an effect on the financial statements of the group and the company for the financial year ended 31 December 2015 and preceding years, if any," said ISR's auditors. It did not, however, issue a qualified audit opinion.
The performance of skincare and wellness products seller Best World is not as spectacular as ISR's but is no less impressive - the stock rose from around S$0.40 in early April to as high as S$1.39 this week, a phenomenal gain of 250 per cent in three months.
Like ISR, this has not escaped the notice of SGX's surveillance department, the latter despatching three trading queries since April as well as one this week asking the company to elaborate on a few items in its accounts. Perhaps because of the heightened regulatory scrutiny, the counter on Thursday crashed S$0.315 or 23 per cent to S$1.06.
In its reply on May 5, Best World said that it was in discussions to possibly buy a property, in line with its strategy to "tap into the value chain of upstream manufacturing activities". However, it emphasised that the talks were ongoing and there was no certainty of the acquisition taking place.
Meanwhile, in its April and June replies to SGX, the company said it did not know why its shares were in play.
Aggressive campaign
The company therefore looks to be doing well and although Bloomberg's financial service lists coverage by only one broker, anecdotal feedback is that several others are considering following suit after an aggressive roadshow campaign by the company.
Of course, whether or not having more research coverage and reporting the financials that Best World did are sufficient explanation for the vast outperformance of its shares is debatable but the fact remains that its price has risen tremendously in a short space of time, drawing SGX's attention.
Look hard enough though and other examples of superior performance can be found - Valuetronics, for example, has risen 36 per cent this year whilst China Minzhong Food gained 46 per cent between the end of 2015 and May 23 when it closed at S$1.01. How much of these rises is due to pure speculation and how much to concrete corporate developments is not known; perhaps the best that can be said at this juncture is that outperformance of any sort, let alone the stunning if puzzling gains posted by ISR and Best World, offers a welcome change as well as hope for investors in a market where underperformance appears to be the norm.