Firms buying back shares at 9-month high in June

Share buybacks in the first six months of the year totalled $200.8 million, down 63 per cent from $544 million in the same period last year.
Share buybacks in the first six months of the year totalled $200.8 million, down 63 per cent from $544 million in the same period last year.ST FILE PHOTO

Total outlay of $51.5m still 77% lower than that in June last year

Share buyback consideration on the Singapore Stock Exchange (SGX) hit a nine-month high last month - but it was still just one-quarter of the consideration a year ago.

Companies repurchased about 13.4 million of their outstanding shares through open market transactions, for a total outlay of about $51.5 million, last month - up by 5.9 per cent from the $48.6 million recorded in May.

In share buybacks, issuers repurchase outstanding shares from shareholders through the open market. These shares are then converted into treasury shares.

While last month saw the highest monthly total since the roughly $73 million worth of shares that were repurchased last September, the buyback consideration value was still almost 77 per cent lower than in June last year, when $218 million of shares were repurchased.

The SGX noted yesterday that the Straits Times Index (STI) has rallied by 13.6 per cent in price over the past 12 months, generating a total return of 17.8 per cent.

Share buybacks in the first six months of the year totalled $200.8 million, down 63 per cent from $544 million in the same period last year. NRA Capital research head Liu Jinshu noted that the fall is unsurprising, as share prices have climbed.

"The STI has appreciated from less than 2,900 points a year ago to around 3,200 points today," he told The Straits Times.

"Companies tend to buy back more shares when they believe that their shares are undervalued and that capital can be best utilised by returning it to shareholders."

The year-on-year drop also takes into account the softening in the market early last year, when crude oil prices plummeted, he added.

The five biggest buybacks among the 18 companies repurchasing shares last month were OCBC followed by SIA Engineering, Singapore Post, Hi-P International and Telechoice International.

EYE ON THE MARKET

I think investors are taking a wait-and-see approach, given that the second-quarter earnings season is coming and that we have seen higher volatility in overseas markets lately.

NRA CAPITAL RESEARCH HEAD LIU JINSHU, on the share buyback trend.

OCBC had the highest buyback consideration for the fourth straight month, acquiring $44.8 million of stock in June and taking its number of shares bought under the 12-month mandate to 7.2 million.

In general, a stronger stock market performance this year means that "companies might prefer to decrease their buybacks" in the coming months, said RHB Research Institute Singapore analyst Jarick Seet.

Mr Seet, who follows industrial contract manufacturer Hi-P, said: "They (Hi-P) have actually been buying shares since last year, and their company's fundamentals have improved quite dramatically."

Hi-P recorded net profit of $8.4 million in the first quarter, bouncing back from a $12.4 million net loss a year earlier despite a slide in revenue.

NRA Capital's Mr Liu said: "I don't see higher share buybacks as something to be worried about.

"I think investors are taking a wait-and-see approach, given that the second-quarter earnings season is coming and that we have seen higher volatility in overseas markets lately."

A version of this article appeared in the print edition of The Straits Times on July 05, 2017, with the headline 'Firms buying back shares at 9-month high in June'. Print Edition | Subscribe