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Master Lu, a Hong Kong-listed company, announced a special dividend and then canceled it, which was interpreted by the market as a “cover” for major shareholders to reduce their holdings. A plot that is not even in the movie will actually be staged in the Hong Kong stock market in 2023.
On the evening of September 11, Master Lu announced on the Hong Kong Stock Exchange that the board of directors is expected to hold a meeting next week to review the proposal to distribute special dividends. However, the announcement did not disclose the specific amount of special dividends to be distributed. In the context of the market downturn, Master Lu’s proposal to declare a special dividend was unexpected, and the company’s stock price subsequently rose sharply. It rose by 50% on September 12, and then continued to rise, with a cumulative increase of nearly 70% by September 19.
But on September 20, the company’s stock price plummeted nearly 50%. On the 21st, Master Lu announced that Chengsheng Co., Ltd., one of the controlling shareholders, reduced its holdings by 34.343 million shares on September 20. Based on the day’s closing price of HK$1 per share, the reduction amount would be at least HK$34.343 million. At the same time, the company also announced that it would cancel the board meeting to review the special dividend.
There is nothing wrong with reducing holdings, but if the reduction is coordinated by “manufacturing” benefits, especially if the “manufactured” benefits are still “smoke bombs”, this will undoubtedly damage the interests of investors and disrupt the market order.
Special dividend proposal disappears
Four years later, Master Lu’s dividend proposal attracted market attention.
Master Lu announced on the evening of September 11 that the board of directors is expected to convene next week to review the proposal to distribute special dividends, but it only mentioned the board resolution on dividend distribution and did not determine the specific amount of dividends.
In the capital market, dividends can increase returns and enhance the sense of gain for investors. Listed companies can better demonstrate good performance and highlight investment value. Dividends of listed companies are closely related to corporate profitability. Under the same circumstances, stable dividends of listed companies can increase investors’ trust and support for the company, making it easier to achieve stock price increases.
Master Lu’s first dividend was in 2019 since it was listed on the Hong Kong stock market. That was the first year that Master Lu was listed on the Hong Kong stock market. The company distributed HK$0.1 per share, totaling HK$26.9 million in cash. However, in the following years, Master Lu has not paid cash dividends. From the perspective of company operations, although the company’s performance declined to a certain extent during the epidemic, it is still profitable overall.
After the epidemic, the company’s performance has generally recovered. According to the company’s previously announced results, operating income in 2022 will be 359 million yuan, a year-on-year increase of 6.27%; net profit attributable to the parent company is 60.486 million yuan, a year-on-year increase of 9.90%. In the first half of 2023, the company achieved operating income of 292 million yuan, a year-on-year increase of 61.5%; the profit for the period attributable to the company’s equity holders was 28.573 million yuan, a year-on-year increase of 21.2%.
After 4 years, the company suddenly announced a dividend, which undoubtedly surprised the market. Subsequently, the company’s stock price surged 50% on September 12, and continued to fluctuate and rise in the following days, with a cumulative increase of nearly 70% since the bottom.
However, after the stock price rose sharply, the company suddenly announced the cancellation of the board meeting to consider the proposal to distribute special dividends. The company stated that after comprehensive consideration of the recent unusual fluctuations in the price and trading volume of the company’s shares, in order to fully assess the impact of the declaration of special dividends, the board meeting was canceled.
Once the matter was announced, many stockholders joined the discussion, and some even called investors to complain to the Securities and Futures Commission of Hong Kong. They believed that Master Lu “maliciously released dividend news and promoted bulk stocks”, and “singing up bulk stocks” is generally passed Various means are used to push up the stock price, and then social media platforms are used to spread “insider information” to mislead investors into buying stocks with low liquidity, and then sell the stocks to arbitrage and leave the market. Recently, “bulk cargo trading” has become a focus of the Hong Kong Securities and Futures Commission’s crackdown.
Major shareholders reduce holdings by over HK$34 million
As the stock price soared, Chengsheng Co., Ltd., one of the company’s controlling shareholders, made a large-scale reduction of its holdings.
On September 20, after consecutive surges, Master Lu’s stock price fell by nearly 20% that day. Subsequently, Master Lu announced on September 21 that after making appropriate inquiries, Chengsheng Co., Ltd. voluntarily sold 34.343 million shares in the open market on September 20, accounting for approximately 12.77% of the total issued shares on the date of this announcement.
According to the company shareholders’ rights entrustment agreement signed by Master Holdings Co., Ltd. and Chengsheng Co., Ltd. on September 4, 2018, Chengsheng entrusted Master Holdings to exercise all the rights of Chengsheng as a shareholder of the company (including but not limited to Chengsheng at the company’s shareholders’ meeting voting rights). Master Holdings is directly and wholly owned by Executive Director Tian Tian.
After the shareholding reduction, the company’s shares held by Chengsheng Co., Ltd. were reduced from 82.7451 million shares (accounting for approximately 30.76% of the total issued shares) to 48.4021 million shares (accounting for approximately 17.99% of the total issued shares).
Calculated based on the closing price on September 20, the amount of Chengsheng Co., Ltd.’s holding reduction was approximately HK$34.343 million. If calculated based on the average transaction price of HK$1.219 per share, the amount of Chengsheng Co., Ltd.’s reduction reached HK$41.8641 million.
Source: Securities Times
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