Malek Spinning share price skyrockets ‘unusually’ before investment disclosure

The Dhaka Stock Exchange sensed something fishy with Malek Spinning Mills Ltd and called it an “unusual price hike”.

The DSE wrote to Malek Spinning on Tuesday, ordering the company to explain the eye-popping surge in prices and volume. Then the company came up with disclosure of Tk 2.13 billion investment plan, raising the prices further on the prime bourse.

Questions abound as the stock surged 132 percent over the past two months.

The company offered an explanation to the DSE, saying that it did not have any “material information” for disclosure to the shareholders and regulatory agencies, before holding the board meeting on Tuesday.

Data show the stock was oversubscribed as the 14-day relative strength index shot past 70, indicating ominous signs.

Abdul Matin Patwary, acting managing director of Dhaka Stock Exchange, put it simply: “Malek Spinning has broken the rules by not disclosing the investment at the proper time.”

Citing the rules, Patwary said the company should have informed the DSE within half an hour into taking the decision.

The DSE has informed Bangladesh Securities and Exchange Commission about the issue and the company will face legal action, he said.

Syed Saiful Haque, company secretary of Malek Spinning, said they did not know why the price of their share is shooting up.

“We took the decision (on the investment) yesterday (Tuesday). We informed (the DSE) about it. Now we can’t say why the share price is rising this way.”

On Wednesday, Malek Spinning shares were traded at Tk 31.6 per issue, rising by Tk 8.9 in the past five days, and by Tk 18 from Tk 13.6 on Apr 28. It means the company’s share saw a 132.35 percent rise in one month and 25 days.

Most of the investors did not sell off their shares on Wednesday, hoping for a further hike. Over 1.3 million shares of the company changed hands in 290 transactions.

Out of the 193.6 million shares of the company, sponsor directors own 47.34 percent.

The share’s Relative Strength Index or RSI has crossed 70, a sign that indicates investors should be cautious while buying it.

With the new investment, the company said, it will set up a new plant and pay expenses for balancing, modernisation, rehabilitation and expansion of the old one.

The new plant will be on the premises of the old one in Mymensingh’s Bhaluka.

It expects a 60 percent rise in productivity and revenue with the new investment. Currently, it can produce 12.6 million kg of yarn annually.

The investment in the old plant will also help the company raise its profit, Malek Spinning said.

The new investment will come from its own funds and credits from banks and other sources.

Listed in 2010, the company’s share is traded in category A.

In the year ending on Jun 30, 2020, the company reported a loss of Tk 326.1 million.

In the nine months until March this year, its Earnings Per Share was Tk 1.98.

With a market capital of nearly Tk 5.6 billion and paid-up capital of Tk 1.93 billion, the company’s reserves stand over Tk 4.86 billion.