Share consolidation is an exercise whereby the shares of existing shareholders are combined. For example, in a 10 to 1 consolidation, 10,000 shares that you own will become 1000 shares.

Even though the number of shares has been reduced, nothing has changed in terms of the percentage of shareholdings. Theoretically, the price of the shares should increase by the same multiple in which the share was consolidated.

For example, if the price of a share was trading at $0.10 and there’s a consolidation of 10 is to 1, it should trade at $1 after the consolidation exercise.

Recently, there had been a number of share consolidations. Chasen, whose share was trading at $0.005 to $0.01, did a 100 is to 1 consolidation. If the valuation remains unchanged (big if), the price should trade at $0.50 to $1 post consolidation.

Apparently, there were many shareholders who were not aware of this consolidation and happily sold their shares at $0.13-0.20 post consolidation. On the other side, directors and the company were buying up the shares, driving up the price to $0.30.

The sellers would have gotten a rude shock (and big loss) when they later realised they had unknowing shorted the shares as the number of shares they owned had actually reduced. They would be subjected to SGX’s compulsory buyback and a check of SGX’s annoucements confirmed that indeed there were many short sellers for several days after consolidation (even up to today!).

Two other companies which also had share consolidations, STX Pan Ocean and Anwell, did not seem to have much of this “short selling” problems taking place. 

If you are a shareholder of any company, this highlights the importance of reading the documents that they send to you. Know what is happening to your company, and do not be caught off guard just because you didn’t know what is happening.

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Anwell is a company based in Hong Kong/China that was listed on SGX in November 2004 at an offer price of $0.38. Back when it was listed, it’s primary business was in optical disc equipment manufacturing. Since then, it has branched out into the optical disc business, Organic Light-emitting Diode (OLED) equipment and Thin Film and Vacuum Coating technology.

The AGM was a pretty quiet affair, with only a handful of shareholders present. It was a useful session as I managed to ask the CEO and chairman, Mr Franky Fan, quite a number of questions. Here are some of the findings:

1. The last few years was a challenging time for the optical disc equipment industry. At the time of Anwell IPO, it had about a dozen competitors. Due to the industry consolidation, they are now left with one major competitor which is Singulus Technologies AG from Germany. This means that Anwell is now very well positioned to take advantage of the market recovery.
2. The announcement by Toshiba to stop the development and sales of their HD-DVD is good news for Anwell. Since the standard is now finalised, it will allow potential customers to move ahead with their purchase of the Blu-ray disc manufacturing machines. As the products from Anwell are better and cheaper than the ones from their competitors, they will be able to capture a good portion of the market share. Due to their location, they are also likely to be the vendor of choice for Asia customers. They will not have problems with their existing HD-DVD manufacturing product lines as most of the components can still be used for other products.
3. The purchase of the optical disc business will help ensure a steady stream of cashflow for the company. If industry conditions improve, it is likely that Anwell will be a cash rich company. This cash can then be used for more research, share buyback or dividends. The choice will depend on which option can bring the best value to the company.
4. The decision (announced earlier this month) to move into Thin Film and Vacuum Coating research is a major one. This is not really a completely new area for Anwell but it leverages on their current technology and research. The research and development for the thin film solar cell equipment is likely to be completed this year. The energy payback time and manufacturing cost of the thin firm solar cell is much lower than conventional silicon crystalline solar cell. If this new product line succeeds, it will be a very significant contribution to the bottomline of Anwell.
5. The share consolidation exercise proposed a few months earlier has been put on hold due to feedback/comments from shareholders.

Somehow, I forgot to ask the management the impact of the current US recession and financial markets liquidity problem on Anwell.

Based on the information I gathered from the AGM, it seems the solar cell research could be the next big thing (or dud) for Anwell. After a few years of disappointment with their financial results, hopefully shareholders will be able to see some good news in the next one or two years.

Anwell is currently trading at a price of $0.055 and has about 2.5 billion shares issued. The share is not so liquid as the top 20 shareholders (including nominees) already own about 90% of the company.