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Rough start for CSX’s second listing

Grand Twins International chief executive Liao Chung-te at the launch of the company’s IPO in June last year.
Grand Twins International chief executive Liao Chung-te at the launch of the company’s IPO in June last year. Hong Menea

Rough start for CSX’s second listing

Grand Twins International launched its IPO one year ago to much fanfare, but a dwindling stock price has failed to generate much confidence in Cambodia’s fledgling bourse

Despite the initial fanfare at the Cambodia Securities Exchange over the listing of Grand Twins International 12 months ago, the Taiwanese garment manufacturer was still grappling with the aftermath of worker strikes that had left the garment sector in turmoil.

The day it listed, GTI, a subsidiary of Taiwan-based QMI Industrial and manufacturer of sporting apparel for the likes of Reebok and Adidas, said it wanted the firm to be a showcase for QMI’s plans to publicly list its businesses across the region.

But after GTI raised $20 million at an offer price of $2.41 per share during its initial public offering, its share price dropped 6.3 per cent in its first week of trading, in sharp contrast to state-owned utilities provider Phnom Penh Water Supply Authority, which rose 9 per cent in its first week.

Since then, Cambodia’s two listed companies have followed a similar trajectory, with share prices dropping significantly. From an initial price of $2.41, GTI’s share price now stands at $1.45, a 40 per cent drop.

Sok Chamrouen, vice general manager at Phnom Penh Securities, which was the primary underwriter for GTI’s initial offering, said the garment manufacturer’s 2014 revenues, which decreased 12 per cent from 2013, were not responsible for its poor performance on the stock exchange.

Rather, negative investor sentiment after the strikes and the exponential rise of the real estate sector last year combined to make the latter a more alluring investment, said Chamrouen.

“Thus, both foreign investors and Cambodian investors felt fear to inject money into the stock market, and doubled down in real estate trading,” he said.

Garment factory workers at GTI.
Garment factory workers at GTI. Vireak Mai

“As a result, the liquidity [in the stock market] became smaller and smaller, like a vicious circle.”

While GTI has yet to release its earnings for the first quarter of 2015, it reported sharp plunges in the third and fourth quarter last year – 40 per cent and 28 per cent, respectively – blaming re-allocation of orders to other suppliers due to instability earlier in the year.

In spite of this, the company announced a $1.76 million, or $0.04 per share, dividend payout using its post-tax annual income of more than $3.4 million. The other half of the income was retained for future expansion plans.

GTI did not respond to requests for comment.

While getting out of the shadow of the wage-related strikes would involve building trust between buyers and investors, Svay Hay, president and chief executive of Acleda Securities brokerage firm, said paying a dividend was a positive sign to investors. “It’s good to see a high dividend by which income investors may invest more,” Hay said.

Hay added that GTI is making efforts to double its profit this year, in an attempt to revive its flagging stock price.

But a large obstacle looms over the revival of GTI’s stock price, the next round of talks over an expected garment industry wage hike. In November last year, garment manufacturers were granted a $128 monthly minimum wage.

Several independent unions have agreed to push for a $177 minimum wage in 2016, with talks expected to begin in July.

Ken Loo, general secretary at the Garment Manufacturers Association, said that the impact of a possible wage hike could be gauged only after the government’s position is known. “Whatever level they [unions] are demanding is not the level they will get eventually.”

According to Chamroeun, a large increase in input costs such as salaries could affect revenues, hurting profits and causing the stock value to drop.

While anticipating increased expenditures could help mitigate the issue, another problem to be grappled with is low investor confidence in stocks as an investment tool in Cambodia.

Soleil Lamun, director of market operations at CSX, said the exchange was working with both listed companies to maintain investor interest and try and improve the exchange’s low trading volumes.

He added that the CSX was allowing companies to have education sessions and increase access to company information, which was critical to building investor confidence.

“It is a good sign that companies are taking care of their shareholders.”

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